Japan’s exports drop the most in three years as trade war hits

Exports of cars and car parts to the US and China in particular contribute towards a slump in October exports.

Japan's exports fell for the 11th straight month in October, the longest contraction since November 2016 [File: Third party via Reuters]

Japan‘s exports tumbled at their quickest pace in three years in October, threatening to tip the trade-reliant economy into recession as weakening demand from the United States and China darkened the outlook.

Official data out on Wednesday showed Japan’s exports fell 9.2 percent year-on-year in October, a bigger decline than the 7.6 percent drop expected by economists in a Reuters poll as the figures slid for an 11th straight month.

The feeble results, driven by plummeting shipments of cars and aircraft engines to the US and plastic materials to China, marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016.

Advertisement

“The main impression from the figures is that exports to the United States are getting weaker,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The data comes after a preliminary reading of third-quarter gross domestic product last week showed Japan’s economy posted its worst growth rate in a year.

As trade with the world’s two largest economies slips, Japan is turning instead to the United Kingdom, which faces its own economic concerns as it prepares to leave the European Union.

Advertisement

Japanese Economy Minister Yasutoshi Nishimura said on Wednesday that he hoped the UK would join the Trans-Pacific Partnership (TPP), an 11-member free trade agreement, after it leaves the European Union.

Nishimura told reporters at the Japan National Press Club that negotiations about Britain’s entry into the free trade bloc cannot fully take place as long as it remains an EU member. 

He also said he hoped Japan’s economic relations with Britain remain strong after Brexit.

Japan had led TPP negotiations after US President Donald Trump pulled his country out of the agreement, being the largest of the 11 economies involved in the trade deal.

Now Japan is pursuing a bilateral trade agreement with the US, with its lower house of parliament approving on Tuesday a limited deal that Prime Minister Shinzo Abe signed with the US that would clear the way for tariff cuts next year on items including US farm goods and Japanese machine tools.

Japan’s exports to the US dropped by 11.4 percent in the year to October, hurt by reduced shipments of cars with two to three-litre engines, aircraft engines and car parts.

Advertisement

Legislators have called on the government to boost spending by as much as 10 trillion yen ($92.1bn) for the current fiscal year to support the economy, which many fear is facing additional pressure from a sales tax rise that took effect in October.

The government has said it plans to compile a stimulus package as soon as possible as a pre-emptive measure against heightening overseas risks.

Some analysts have warned that the sales tax increase could damage the world’s third-largest economy, as the last such increase did in 2014, especially if domestic consumption cools sharply.

Advertisement

While fiscal stimulus could help offset risks, such measures are unlikely to support the economy until next year, said Minami.

“There’s a lag before fiscal stimulus measures come into effect and it’s unclear how much effect they will have.”

The Bank of Japan kept monetary policy steady last month but gave its strongest signal that it may cut interest rates in the near future.

Advertisement

The export slowdown was partly due to a strengthening of the yen in October and a typhoon hitting Japan, said Taro Saito, executive research fellow at NLI Research Institute.

“There was a large fall, but it isn’t so bad when taking the impact of the typhoon into account,” Saito said.

Exports in volume terms, which excludes the exchange rate effect, slumped by 4.4 percent in the year to October, the third consecutive month of declines and the largest fall since a six percent drop in August, the finance ministry said.

By destination, exports to China, Japan’s biggest trading partner, slipped 10.3 percent year-on-year in October, down for the eighth month as shipments of plastics and car parts declined.

Exports to Asia, which account for more than half of Japan’s overall exports, tumbled 11.2 percent in the year to October, down for the 12th month.

The nation’s overall imports sank 14.8 percent year-on-year, a smaller decline than the median estimate for a 16 percent decrease.

That pushed the trade balance to a surplus of 17.3 billion yen ($159m), from a deficit of 124.8 billion yen ($1.15bn) and against a 301 billion yen ($2.77bn) surplus expected by economists.

Source: Reuters

Advertisement