FILE PHOTO – A worker works at a container area at a port in Tokyo, Japan July 19, 2017. Picture taken July 19, 2017. REUTERS/Toru Hanai/File Photo LICENSES RIGHTS
- July exports fall 0.3% while a 0.8% decline was forecast
- The economic slowdown in China is fueling fears of a sharp global downturn
- The trade balance falls back into the red
- Key indicator of investment, up 2.7%m/m in June, weak outlook
TOKYO, Aug 17 (Reuters) – Japan’s exports fell in July for the first time in nearly two-and-a-half years on flagging demand for light oil and chip-making facilities, underscoring concerns of a global recession as demand took center stage stands weakening markets like China.
Japanese exports fell 0.3% year-on-year in July, Ministry of Finance (MOF) data showed on Thursday, compared with a 0.8% decline economists had expected in a Reuters poll. It followed a 1.5% gain in the previous month.
Separate data from the Cabinet Office showed a key indicator of the rise in capital spending in June. However, manufacturers must brace themselves for core orders to fall in the current quarter, in part due to weak offshore demand.
Overall, the data underscored the fragility of Japan’s export engine, contributing to better-than-expected second-quarter domestic product (GDP) growth, with auto deliveries and tourism being the main drivers.
Japanese politicians are banking on exports to prop up the world’s third-largest economy and offset sluggish private consumption, which has been hit by rising prices.
However, the specter of a deeper global slowdown and slowing growth in Japan’s main market, China, have raised concerns about the outlook.
The World Bank has warned that higher interest rates and tighter credit will weigh more heavily on global growth in 2024.
Worries about global growth were underscored by earlier separate data showing continued declines in Singapore’s exports, which were seen as a gauge of foreign demand as trade flows dwarfed the city-state’s economy.
“China remains weak and I don’t expect demand from Europe and America to accelerate further,” said Takeshi Minami, chief economist at Norinchukin Research Institute, adding that Japan’s economy could suffer a downturn in the current quarter.
By destination, exports to China, Japan’s largest trading partner, fell 13.4% yoy in July, driven by a drop in shipments of autos, stainless steel and microchips, after falling 10.9% in June .
Shipments to the US rose 13.5% yoy last month, hitting the highest on record, led by shipments of electric vehicles and auto parts after a 11.7% rise in the previous month.
Japan’s exports fall for the first time since 2021
Bleak prospects of keeping BOJ on hold
“The Bank of Japan needs to be mindful of the downside risks to the global economy. Therefore, it has no choice but to refrain from any efforts to normalize monetary policy for now amid the risk of an external slowdown,” Minami said.
At its July meeting, the BOJ left its yield curve control (YCC) targets unchanged, but took steps to allow long-term interest rates to rise more freely in line with rising inflation and growth.
Thursday’s data also showed that imports fell 13.5% in the year to July, while the median estimate called for a 14.7% drop.
The trade balance posted a deficit of 78.7 billion yen ($537.27 million), while the median estimate was a surplus of 24.6 billion yen.
Separate data showed that Japan’s core machinery orders rose 2.7% mom in June.
Year-over-year, core orders, a highly volatile series of data that’s thought to be indicative of capital spending over the next six to nine months, fell 5.8%.
Manufacturers polled by the Cabinet Office expect core orders to fall 2.6% in the July-September quarter, which together with weakness in exports suggest increasing pressure on the Japanese economy.
“On its own, the July trade numbers still point to a small increase in net exports in the third quarter,” said Marcel Thieliant, head of Asia Pacific at Capital Economics.
“But even if that were the case, GDP growth would certainly slow down sharply,” he added.
($1 = 146.4800 yen)
Reporting by Tetsushi Kajimoto. Edited by Shri Navaratnam and Kim Coghill
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