A pedestrian walks past the Bank of Japan building in Tokyo. Cooling growth in China and an economic chill in Europe are adding to pressure on the BoJ to step up policy support as the economy struggles to recover from the pain of an April sales tax hike.
Reuters
Japan’s exports rose at the fastest pace in seven months in September as sales to Asia picked up, but signs of slowing global growth may hurt the trade sector’s ability to recharge the world’s third-biggest economy and keep up pressure for fresh stimulus.
In particular, cooling growth in China and an economic chill in Europe – two key markets for Japanese exporters – are adding to pressure on the Bank of Japan and the government to step up policy support as the economy struggles to recover from the pain of an April sales tax hike.
“Exports staged a rebound but they are still lacking momentum as a trend, as Japanese carmakers and other firms are shifting production abroad and global growth remains moderate,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“The bank may still insist that the economy is on track to meet its inflation goal, but I see it will come under pressure for fresh stimulus sooner or later.”
A recent run of weak data including a shocking slump in factory output prompted the government to cut its economic view on Tuesday, raising speculation that it may roll out fresh stimulus steps when it makes a decision on the second-stage of the sales tax hike in December. An economic adviser to Japanese Prime Minister Shinzo Abe said yesterday that the next sales tax hike should be delayed until April 2017, given the big risk that another tax increase would pose to the fragile economy.
In that context, yesterday’s trade figures should be welcome news to Tokyo. The 6.9% annual increase in exports in September was roughly in line with a 6.8% gain expected by economists, and the biggest rise since February. It follows a 1.3% year-on-year decline in August.
Exports to Asia, which accounts for more than half of Japanese shipments, rose 8.1% in September from a year ago due to growing demand for electronic parts and metals from China and Vietnam, the data showed. Sales to China also gained an annual 8.8%, but there are worries as growth in Asia’s economic powerhouse slowed to its weakest since the global financial crisis in the third quarter.
Exports have disappointed for much of this year because many companies have shifted production overseas, tempering the benefits of weaker yen.
Now, renewed turbulence in the global markets on signs of a slowing world economy could snuff out any gains in exports, hurt Japan’s economy and complicate the planned sales tax hike next year. “Exports have not been growing the way the BoJ expected this year and domestic demand is weak, so the BoJ will cut its growth projections at the end of this month,” Minami said.
Still, the Bank of Japan is expected to hold off from launching a fresh round of stimulus in the near term, hoping that domestic consumption will steadily pick up and help spur growth. Underperforming exports have been one of the weak links in the Japanese economy, which is struggling to cope with an April hike in the sales tax to 8% from 5%.
Japan’s economy shrank an annualised 7.1% in the second quarter, with the tax hike causing the biggest contraction since the 2009 global financial crisis.
The BoJ can take some comfort from the September export data, though economists say the central bank would need to see sustainable growth in shipments to feel confident about a trade-led economic rebound. In September, exports picked up momentum as Japan’s automakers shipped more cars to Britain and Saudi Arabia, the data showed. Increased shipments of steel to India also pushed exports higher.
Overall shipments to the US rose 4.4% on-year in September, though worryingly sales of cars fell an annual 5.2% – a consequence of auto makers continuing to shift production overseas.
The threat of recession and deflation in the eurozone also weighed on demand there as exports to Europe grew only 0.7% on-year in September, slowing sharply from 5.6% in August.
Japan’s trade balance came to a deficit of ¥958.3bn ($8.96bn), wider than the median estimate for a ¥777.0bn deficit, as imports rose an annual 6.2% in September, ahead of the median pick for a 3.0% increase.
While the economy is forecast to resume expansion in the third quarter, the pace could be very slow, which would fuel speculation that the government will delay a second sales tax hike to 10% scheduled for next year.
The BoJ appears set to resist pressure for more easing or to accept that its inflation target is unrealistically high.
