Japan Export Growth Slows As Strong Yen Weigh

Discussion in 'Economics' started by ASusilovic, Sep 27, 2010.

  1. TOKYO (Dow Jones)--Japanese export growth slowed in August due to the strong yen and slack buying overseas, stoking concerns that the country's export-driven economy may lose more steam ahead.

    While still solid demand for Japanese steel and other products in Asia pushed overall exports up 15.8% on year to Y5.224 trillion, that was down from the 23.5% rise in July, the Ministry of Finance said Monday. The result also fell short of the median forecast for a 17.9% rise in a poll of economists by Dow Jones Newswires.

    "Yen strength was certainly a factor in the slower export growth in August," a MOF official said. The average dollar-yen exchange rate in August was Y86.37, down 9.1% from Y94.97 in the same month last year, according to ministry data.

    Seasonally-adjusted real exports fell 2.3% on month, for the fourth straight month of falls. The slowing exports may intensify pressure on the government of Prime Minister Naoto Kan to do more to support an economic recovery that looks increasingly vulnerable to further slowdown. Citing the strong yen as a downside risk, Economy Minister Banri Kaieda said Friday he thinks the economy is entering a lull.

    Since overseeing the government's first currency market intervention in more than six years earlier this month, Finance Minister Yoshihiko Noda has said the government will continue to take decisive steps to deal with the strong yen, which makes Japanese products less competitive overseas and diminishes revenue sent back to Japan.

    "Due to the slowdown in the global recovery and the heightened appreciation of the yen, the head-winds to Japan's economy are definitely strengthening," said Masamichi Adachi, economist at J.P.Morgan Securities Japan.

    Other economists echoed that view. "The idea of a V-shaped recovery based solely on the export sector is no longer a credible scenario," said Japan Research Institute chief economist Hidehiko Fujii.

    Japan's trade surplus fell 37.5% on year to Y103.2 billion, the first fall in 15 months. The result fell short of expectations for a Y200.0 billion surplus in a poll of economists by Nikkei and Dow Jones Newswires. The lower surplus came as imports rose 17.9% on-year to Y5.121 trillion, due to increases in liquefied natural gas and iron ore.

    The slowdown in overseas shipments came as exports to the United States rose only 8.8% on-year in August to Y776.1 billion, slowing from the 25.9% rise in July to Y972.5 billion. Shipments of autos to the U.S. fell 8.3%, for the first on-year fall since October 2009, the Finance Ministry official said. The volume of auto exports was up only 0.6%.

    The overall slowdown in exports would have been worse if not for continued strength in shipments to China and other high-growth Asian economies. Exports to China, Japan's largest trading partner, rose 18.5% to Y1.048 trillion, while exports to Asia as a whole were up 18.6% at Y3.053 trillion. Leading the gains were shipments of steel, metal processing equipment, electronic devices and autos, the ministry data showed.

    But despite the relative strength of demand for Japanese goods in China, exports to the Asian neighbor also grew more slowly in August, down from the 22.7% rise in July to Y1.157 trillion. Any more slowdown, as the effects of Chinese government purchase incentives wear off, would further complicate the outlook for the Japanese economy, analysts said.

    Another potential risk is that a diplomatic row over a territorial issue with China could escalate, spilling over into the economic realm, economists said. Economy Minister Kaieda cited the conflict Friday as another potential threat to the Japanese economy.

    The dispute has "definitely been negative news for the trade activities of China and Japan," said J.P.Morgan's Adachi. But as any prolonged trade friction could also harm China, "I don't think from China's perspective it makes sense" to escalate the conflict further, Adachi said.

    Japan last week released a Chinese fishing trawler captain it had detained after a collision with the Japanese coast guard in disputed waters, but China has continued to demand an apology and compensation for the incident.