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Wednesday, October 24, 2007

Japan Exports September 2007

Japan's exports grew at the slowest pace in two years in September as shipments to the U.S. dropped back. In total exports rose 6.5 percent from a year earlier, according to data from the Japanese Finance Ministry released earlier today. At the same time imports declined for the first time in more than three years, helping the trade surplus widen to yet another record.

Shipments to China, the rest of Asia and Europe, however, remained reasonably firm, and this is important given the fact that exports constitute the main engine of the growth for the Japanese economy. Growth in exports to China slowed somewhat, down to an annual 16.5 percent last month from and annual 23.7 percent in August. Asian exports increased at an 8.3 percent rate after climbing by 16.4 percent in August. Shipments to Europe rose 13.2 percent in September after August's 15.5 percent gain.

Now the situation is slighly deceptive given that a significant part of the exports to China, the tigers and emerging Asia (ASEAN) consists of components which will be processed and then re-shipped elsewhere (principally Europe and the US), but still, there is obviously some element of "rebalancing" going on, and it will be interesting to monitor this as we move forward. The vitality of Japanese exports to the EU is hardly surprising given the relative values of the yen and the euro, but it would be interesting to check just how exports to the EU are growing from Singapore, Hong Kong, Taiwan and South Korea (the position vis-a-vis China is already pretty well known I think).

Exports to the US fell 9.2 per cent from a year earlier, and this was the biggest drop since November 2003, a factor which raises fears that subprime problems were taking a toll on Japan’s major export destination. The main component in the fall in US-bound exports was auto shipments, which fell 15.2 per cent from a year earlier. Construction machinery for housing also fell significantly.

Imports fell 3.2 percent in September, the first drop since February 2004, as oil costs declined 12.4 percent from September 2006. In so doing they confounded a consensus forecast for a 2 per cent increase. As a result, the trade surplus expanded by 62.7 per cent to a record Y1,640bn ($14.3 bn), compared with economists’ median forecast for a 47.1 per cent rise to Y1,500bn.

Japan needs export growth if the economy is to rebound from its second-quarter contraction as falling wages keep the lid on spending by consumers at home. Japan’s economy in fact contracted 0.3 per cent in April-June largely as a result of a slump in capital spending, so it will be very interesting to see whether Japan is able to turn this situation around in the July-September quarter, and if it does manage to do this, just how it manages to do so.

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