Export fall bodes ill for Japan

The International cargo terminal in Tokyo on Wednesday. Japan’s annual exports fell for the first time in 15 months in May. — AFP

Japan’s annual exports declined for the first time in 15 months in May as shipments to Asia and the United States fell, threatening to knock the economy hard at a time when domestic consumption is being crimped by a national sales tax increase.

The data backs expectations for additional stimulus from the Bank of Japan in coming months, particularly if market confidence takes a hit as external demand proves elusive.

“If exports fail to pick up while domestic demand stagnates, that would heighten calls for the BoJ [Bank of Japan] to act,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Total exports fell 2.7 per cent May on the year, Ministry of Finance data showed on Wednesday, compared with a 1.2 per cent drop seen by economists and a 5.1 per cent rise in April.

On a seasonally-adjusted basis, exports fell 1.2 per cent in May from the prior month.

The central bank is counting on exports growth to partially offset the impact of a sales tax hike to eight per cent from five per cent in April, but the MoF data will be a worry for policy makers.

Adding to the BoJ’s concerns over soft exports to Asia is the surprising weakness in shipments to the US — Japan’s biggest export market — which suggests a recovery in advanced economies is slow to filter through to exporting firms.

This was underscored in Singapore’s exports for May, which unexpectedly fell on weak shipments to its key markets. The city-state’s non-oil domestic exports to the US fell 8.8 per cent in May from a year earlier, compared with 11.7 per cent growth in April.

In South Korea, exports to the US rose 5.5 per cent year-on-year, but that was much slower than April’s 19.3 per cent jump.

The MoF data showed Japan’s US-bound exports fell 2.8 per cent, the first drop in 17 months led by decline in car shipments, while exports to China rose 0.4 per cent on-year. Exports to Asia, which account for more than half of Japan’s total exports, fell 3.4 per cent in May from a year earlier, the first annual decline in 15 months.

Misplaced confidence?

BoJ Governor Haruhiko Kuroda last week said the timing of export recovery may have been delayed, but the bank has maintained that the economy is on track to meet its two per cent inflation goal next year, shrugging off the need for additional stimulus.

Minutes of the May 20 and 21 BoJ meeting released on Wednesday reinforced policymakers’ confidence about the economic outlook. The central bank chief sees shipments eventually picking up as overseas markets, mainly advanced economies, recover.

However, the latest data suggests external demand may not fire up nearly enough to help Japan’s economy cope with short term dips in growth.

Norinchukin Research’s Minami believes that although market expectations for fresh BoJ easing steps have largely been pushed back to later this year, Kuroda may act by autumn to arrest a loss of momentum.