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Thursday, December 21, 2006

Japanese Exports Continue To Power Ahead

Japan's export growth accelerated in November:

Exports rose 12.1 percent, helping the trade surplus widen to 915.9 billion yen ($7.7 billion) from 594.4 billion yen a year earlier, the Ministry of Finance said today in Tokyo. Imports gained 7.5 percent, down from 17.5 percent in October.

The yen's decline against the dollar and euro has helped reduce the effects of slower overseas demand, bolstering exports. Shipments abroad grew at the slowest pace in six months in October, causing concern that the economy would stall amid sluggish consumer spending at home.

The reason for the increase isn't too hard to pin down:

``There is no doubt that the yen's weakness remains an engine for Japan's exports,'' said Yoshimasa Maruyama, an economist at BNP Paribas. ``Today's numbers confirm Japan's exports maintain more momentum than we had expected.''

and there is evidence that relative movements in currencies are being reflected in the differing rates of increase to the receiving countries:

Exports to the U.S. climbed 8.6 percent, the slowest in five months. Shipments to the European Union accelerated to 12.9 percent from 8.7 percent. Exports to China quickened to 19.5 percent from 18.3 percent.

The yen is trading about 7 percent below the average rate last year, making Toyota cars and other Japanese goods cheaper abroad. The yen has fallen 7 percent against the euro in the past six months, buoying the value of imports. Exports to the region measured by volume, which don't take into account price changes, only grew 2.9 percent in November.

That is you only get the relatively higher number for the euro region (12.9% vs 2.9% when you take into account the yen value of products sold in dollars). Then note the following:

Japan's economy expanded an annual 0.8 percent in the third quarter and would have shrunk if it weren't for strong export growth and corporate spending on factories and equipment. Consumer spending, which accounts for more than half of the economy, had the biggest decline in almost a decade.

Not only is the Japanese economy dependent on an export model, but it will actually start to shrink if exports lose momentum. So while this is not the full recovery everyone has been expecting, it is sustainable, just as long as the export growth continues. Quite a delicate situation, and one which explains the sensitivity of Japanese stocks and bonds to each and every jitter in the United States. Given that they are now becoming more and more dependent on Europe, I guess the sustainability of Germany's recovery is now also very much a matter of concern to them.

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