Japan’s weak yen lifts exports, but falling volume highlights soft demand
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In volume terms, exports struggled to pick up, reflecting slowing global demand.
PHOTO: BLOOMBERG
TOKYO - Japan’s weak yen sharply boosted the value of exports in May but the volume of sales shrank for the fourth consecutive month, highlighting that global demand is still relatively soft and complicating the central bank’s monetary tightening path.
The Bank of Japan last week took a step forward to reduce its huge bond purchases as part of plans to exit years of massive stimulus. The soft underbelly in the trade report though adds to the picture of a fragile economy, making future interest rate hikes far from assured.
Shipments rose 13.5 per cent year on year in value terms in May – driven by US-bound shipments of cars and China-bound chipmaking machinery – data from the Finance Ministry showed on June 19, versus a 13 per cent increase seen by analysts in a Reuters poll and an 8.3 per cent gain in April.
Exports in terms of volume, however, dipped 0.9 per cent year on year in May, reflecting tepid global demand.
“The big increase in exports was caused by the weak yen, but actual demand was not that strong,” Mr Takeshi Minami, chief economist at Norinchukin Research Institute, said.
“Europe-bound exports are weakening, US-bound shipments are peaking out and demand from China is struggling to grow,” Mr Minami said. “As overall exports are likely to slow down going forward, you cannot expect exports to become the main engine of growth over the next one to two years.”
China’s economy, a key engine of global growth, has struggled to mount a solid post-Covid-19 recovery amid a protracted property-sector crisis.
That has undermined the economies of major exporting nations like Japan and put more of the onus on consumers at home to boost overall growth. The underlying weakness in overseas demand could shatter policymakers’ hopes that exports will offset tepid domestic consumption.
The trade data came on the heels of a Reuters Tankan poll that showed confidence among big manufacturers fell in June. The batch of data underscores the uneven nature of economic recovery.
Analysts at Capital Economics expect net trade to drag on Japan’s second-quarter gross domestic product growth, forecasting the economy to expand a modest 0.2 per cent quarter on quarter after it contracted 0.5 per cent in the previous three months.
June 19’s data showed imports grew 9.5 per cent, compared with expectations for a 10.4 per cent rise. They rose 8.3 per cent in April. That left the trade balance at a deficit of 1.22 trillion yen (S$10.4 billion), smaller than an average analyst estimate of 1.31 trillion yen.
Car sales were the biggest contributor to the overall growth in exports, rising 13.6 per cent in value. The volume of such exports, however, dropped 1.4 per cent, indicating that the value was inflated by the weak yen.
By destination, exports to China rose 17.8 per cent year on year in May, led by demand for chipmaking machinery, the trade data showed.
Shipments to the US, Japan’s ally and key market, grew 23.9 per cent year on year in May, posting the largest percentage increase since November 2022, while those to the European Union fell 10.1 per cent. REUTERS
