Japan exports disappoint, risks hitting economy hard

Japan’s annual exports declined for the first time in 15 months in May as shipments to Asia and the United States fell, threatening to knock the economy hard at a time when domestic consumption is being crimped by a national sales tax increase.

The data backs expectations for additional stimulus from the Bank of Japan in coming months, particularly if market confidence takes a hit as external demand proves elusive.

Total exports fell 2.7 per cent May on the year, Ministry of Finance data showed on Wednesday, compared with a 1.2 per cent drop seen by economists and a 5.1 per cent rise in April. On a seasonally adjusted basis, exports fell 1.2 per cent in May from the prior month.

The central bank is counting on exports growth to partially offset the impact of a sales tax hike to 8 per cent from 5 per cent in April, but the MOF data will be a worry for policy makers.

Adding to the BOJ’s concerns over soft exports to Asia is the surprising weakness in shipments to the United States - Japan’s biggest export market - which suggests a recovery in advanced economies is slow to filter through to exporting firms.

This was underscored in Singapore’s exports for May, which unexpectedly fell on weak shipments to its key markets.

The city-state’s non-oil domestic exports to the United States fell 8.8 per cent in May from a year earlier, compared with 11.7 per cent growth in April.

In South Korea, exports to the US rose 5.5 pe rcent on-year, but that was much slower than April’s 19.3 per cent jump.

The MOF data showed Japan’s US-bound exports fell 2.8 per cent, the first drop in 17 months led by decline in car shipments, while exports to China rose 0.4 per cent on-year.

Exports to Asia, which account for more than half of Japan’s total exports, fell 3.4 per cent in May from a year earlier, the first annual decline in 15 months.

BOJ Governor Haruhiko Kuroda last week said the timing of export recovery may have been delayed, but the bank has maintained that the economy is on track to meet its 2 per cent inflation goal next year, shrugging off the need for additional stimulus. Minutes of the May 20-21 BOJ meeting released on Wednesday reinforced policymakers' confidence about the economic outlook.

The central bank chief sees shipments eventually picking up as overseas markets, mainly advanced economies, recover. However, the latest data suggests external demand may not fire up nearly enough to help Japan’s economy cope with short term dips in growth.

The negative impact of the sales tax hike on consumption was highlighted in Japan’s imports for May, which fell 3.6 per cent on the year, versus a 1.7 per cent increase expected.

The weaker imports helped the country’s trade deficit narrow from a year earlier to 909.0 billion yen, but still marked a record run of 23 months in the red.

Japan’s exports had grown at a double-digit pace in the second half of last year, but growth has slowed to below 10 per cent this year as the effects of a weak yen fade.

More worryingly, the yen’s fall has failed to shore up export volumes, which peaked in 2007 and have been falling for a third straight year in 2013.

Export volumes fell 3.4 per cent in May from a year ago, highlighting the plight of exporters as a weak yen has boosted import costs more than export income.

Reuters