Japan has experienced a decline in its exports for the first time in almost two and a half years, driven by weakened demand for light oil and chip-making equipment.
This situation has raised worries about a possible global recession, particularly as key markets like China face a drop in demand.
Recent data from the Ministry of Finance revealed that Japanese exports fell by 0.3% in July compared to the same period last year.
This decline came as a surprise, as economists in a Reuters poll had expected only a 0.8% decrease. This follows a 1.5% increase in exports the previous month.
On a positive note, separate data from the Cabinet Office indicated a rise in a crucial measure of capital expenditure in June.
Nonetheless, manufacturers are bracing themselves for a potential drop in core orders in the current quarter, largely due to weakened demand from overseas markets.
These figures highlight the fragility of Japan’s export sector, which had played a role in the country’s better-than-expected second-quarter domestic product growth, particularly driven by car shipments and urism.
Japan’s policymakers are relying on exports to bolster the economy, compensating for sluggish private consumption caused by rising prices.
However, concerns are growing due to the prospect of a sharper global economic slowdown, compounded by China’s faltering growth, a major market for Japan.
The World Bank has sounded the alarm, predicting that higher interest rates and stricter credit policies will have a greater impact on global growth in 2024.
These concerns about worldwide economic growth were further underscored by data showing persistent declines in Singapore’s exports.
Singapore’s export performance is often seen as a gauge of global demand, and the continuous decrease raises concerns about the global outlook.
Chief economist at Norinchukin Research Institute, Takeshi Minami, noted, “China remains weak and I don’t expect demand from Europe and America to accelerate further.”
He added that Japan’s economy might face a downturn in the current quarter.
In terms of destinations for exports, shipments to China, Japan’s biggest trading partner, took a significant hit, falling by 13.4% year-on-year in July.
This was due to drops in car shipments, stainless steel, and micro-chips, following a 10.9% decline in June.
In contrast, exports to the United States surged by 13.5% year-on-year last month, reaching the highest value on record.
This increase was driven by shipments of electric vehicles and car parts, following an 11.7% rise in the previous month.
This shift in export dynamics poses challenges for the Bank of Japan. Minami emphasized the need for caution, stating that the BOJ should avoid normalization of monetary policy given the risks posed by the external economic slowdown.
In July, the BOJ maintained its yield curve control targets, but allowed long-term interest rates to rise more freely in line with growing inflation and economic expansion.
The latest data also indicated a 13.5% decrease in imports for the year leading up to July, slightly better than the estimated 14.7% decrease.
Consequently, Japan’s trade balance swung to a deficit of 78.7 billion yen ($537.27 million), in contrast to the predicted 24.6 billion yen surplus.
Additional data revealed a 2.7% increase in Japan’s core machinery orders in June compared to the previous month.
However, when compared to the previous year, core orders, which are indicative of future capital spending, declined by 5.8%.
Manufacturers surveyed by the Cabinet Office foresee a 2.6% drop in core orders for the July-September quarter.
Coupled with the export decline, this hints at mounting pressure on Japan’s economy.
Head of Asia-Pacific at Capital Economics, Marcel Thieliant, commented, “On their own, the July trade figures still point to a small boost from net exports across Q3.”
However, he cautioned that even if this is the case, GDP growth is likely to slow considerably.
