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Thursday, July 24, 2003

Times Getting Harder For Japanese Exports

News from Japan has been slow in recent weeks, the markets have rallied, and expectations and confidence have been up. This increase in moral has in large part been based on hopes for an export lead expansion riding on the backs of a US recovery. With the Yen rising steadily against the dollar, and the US recovery being more muted to date than widely expected, this was always a hard one to swallow. The news on June exports from Japan seems to add some solidity to the skepticism.

Japanese export growth sputtered in June, coming to a virtual halt and casting doubt on the possibility of an economic turnaround led thus far by external demand. June exports were flat compared with the previous month, following 13 consecutive months of increases, according to the ministry of finance.

Though exports to Asia rose 3.8 per cent, it marked the fourth straight month of declining growth overall. Exports to the US, Japan's single largest trade partner, fell 12 per cent in value and 10.5 per cent in volume. The figures cast a dark spell over recent economic data and a month-long rally in the stock market that had suggested the economy was on the road to recovery.

The Bank of Japan earlier this month upgraded its assessment of the economy for the first time in a year, citing a pick-up in exports and an improvement in capital spending by companies. Richard Jerram, economist at ING in Tokyo, said on Thursday in a note to clients: "Apart from the impact from Sars, the prospects for exports in the remainder of [fiscal 2003] have not notably brightened in recent weeks, as a revival in US demand has long been expected."

In the first six months of 2003, however, exports to Asia increased 11.6 per cent to Y11,880bn ($99bn), the highest level ever for a half-year period, according to the ministry of finance. During the period, exports to China increased 36.4 per cent. China last year ousted the US as the world's biggest exporter to Japan. In comparison, Japan's trade surplus with the US shrank 12.9 per cent to Y3,200bn, while its trade surplus with the European Union increased 25.4 per cent to Y1,410bn, caused in part by the euro's appreciation against the yen.Most economists forecast growth in the Japanese economy this year, on a moderate improvement in exports and continued private sector domestic demand growth. ING expects gross domestic product to expand by 1.7 per cent.
Source: Financial Times

The above picture only seems to be confirmed by the latest news from

The drip feed of bad news from Mitsubishi Motors, the Japanese carmaker 37 per cent owned by DaimlerChrysler, continued on Thursday after it announced a sharp downward revision to its full-year profit forecast and cut projected sales in North America. The company said it expected to report a net profit for 2003 of ¥10bn ($84m), down from its earlier forecast of ¥40bn on consolidated net sales of ¥Y2,720bn, compared with an earlier estimate of ¥2,900bn.

The drastic cut in its full-year forecast will come as no surprise to institutional investors who have become used to MMC issuing disappointing news just as it was starting to appear that it might be getting back on its feet. The company attributed the downward revision to a one-off ¥50bn payment to cover bad loans made to customers of Mitsubishi Motors Credit of America (MMCA). This charge comes on top of a ¥295bn payment made for the same reason in the last fiscal year.

The problems emerged after MMCA offered loans to low-income customers with little or no credit checks, resulting in a huge default rate. A spokesman said the latest ¥50bn payment would cover future defaults. "As far as new business is concerned, there is nothing to fear," he said. The downward revision in unit sales in North America from 370,000 to 340,000 is partly attributable to the reduction in sales that will result from the decision to tighten its lending criteria, but also reflects a slowdown in the US economy, MMC said.

The constant bad news emerging from MMC has detracted attention from the achievements of the company's new management. It reported its first growth in net sales since 1997 when it announced results for last year on May 26. Headcount is down 14 per cent, material costs down 15 per cent and domestic production capacity down 20 per cent - all 12 months ahead of schedule - and operating profit doubled to ¥83bn and net profit tripled to ¥97bn. Rolf Eckrodt, chief executive, has also committed the company to a top-line revival driven by a move from 15 platforms to 10 and increasing volume from 100,000 to 200,000 per platform while increasing overall volume from 1.5m to 2m in five years time. But these moves continue to be overshadowed by a cover-up scandal, a huge global recall of 2.5m vehicles and the enormous costs arising from its US finance operations.
Source: Financial Times

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