Japan’s exports fell for a sixth straight month in May as China-bound shipments of semiconductor manufacturing equipment and car parts weakened, in a sign of a deteriorating outlook for growth as the trade-reliant economy faces persistent pressure from slowing external demand.
Sluggish exports have been a source of concern among Japanese policymakers, especially as a bruising United States-China tariff war has upended supply chains and hit global growth, trade and investment.
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“The business sentiment of Japanese firms, and in particular exporters, is falling depending on the extent of US-China trade tensions, and that will suppress exporters’ capital expenditure,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. “I think that will be a negative for Japan’s economy.”
Ministry of Finance (MOF) data showed on Wednesday that exports declined 7.8 percent in May from a year earlier, down for the sixth straight month.
The fall in shipments compared with a 7.7 percent annual decrease expected by economists in a Reuters poll, and followed a 2.4 percent year-on-year fall in April.
The trade data comes on the heels of a Reuters poll of Japanese companies showing the economy is likely to stop expanding this year and into next as the Sino-US trade war and a planned sales tax hike are expected to crimp activity.
“Although export volumes are unlikely to be as weak as they were in the last quarter, a likely rebound in import volumes means that net trade should turn into a drag on GDP (gross domestic product) growth in Q2,” said Darren Aw, Asia economist at Capital Economics in Singapore.
Indeed, Japan’s first quarter GDP growth was partly boosted by a statistical quirk of imports falling more than exports, meaning overall trade provided a boost to the economy even as the underlying picture showed weakness.
Little respite ahead
Earlier this month, Group of 20 finance leaders warned that intensifying trade and geopolitical tensions raised risks to global growth, but they stopped short of calling for a resolution to the deepening US-China trade conflict.
The slowdown in exports in May was also likely caused by the suspension of factory activity due to a 10-day break as the Golden Week holiday was extended this year to mark the enthronement of a new emperor, analysts say.
Overall, however, weak global demand poses risks for the world’s third-biggest economy, and faltering earnings at Japan Inc. suggest little respite in the months ahead, especially if domestic demand fails to offset frail exports.
At a two-day meeting that ends on Thursday, the Bank of Japan is expected to keep monetary policy steady but signal its readiness to ramp up stimulus if growing overseas risks threaten the economy’s modest expansion.
Weak economic growth could prompt Prime Minister Shinzo Abe to postpone a planned sales tax hike to 10 percent for the third time. The previous sales tax hike to 8 percent – from 5 percent – in 2014 hit consumption and was blamed for a slump in the Japanese economy.
By region, US-bound exports rose 3.3 percent in the year to May, driven by a 9.9 percent rise in car shipments, while imports fell 1.6 percent, led by crude oil. It marked the eighth straight month of exports growth to the US following a 9.6 percent increase in April.
As a result, Japan’s trade surplus with the United States grew 14.8 percent in May from a year earlier to 395 billion yen ($3.64bn), rising for three months in a row – a worrying signal for bilateral trade talks as Tokyo is under pressure from Washington to fix what it says is an unfair trade imbalance.
Exports to China – Japan’s biggest trading partner – fell 9.7 percent in the year to May, posting a third straight month of declines, the trade data showed.
Many Japanese firms, tapped into China’s market and their supply chains, face growing pressure on margins as the world’s second-biggest economy slows.
‘Deceleration of the global economy’
“If the economic expansion in the United States and China comes under pressure, it will weaken growth of the world economy as a whole, and that will lead to a deceleration of the global economy, including Japan,” said Mitsubishi UFJ’s Miyazaki.
Shipments to Asia, which account for more than half of Japan’s overall exports, fell 12.1 percent year-on-year in May.
Japan’s overall imports fell 1.5 percent in the year to May, compared with the median estimate for a 0.2 percent annual increase.
The trade balance came to a deficit of 967.1 billion yen ($8.9bn), versus the median estimate for a 979.2 billion yen ($9bn) shortfall and marked the fourth straight month in the red.