AUGUST 17 (REUTERS) – TOKYO Concerns of a global recession as demand in important countries like China weakens have contributed to a decline in Japan’s exports in July for the first time in over 2 and a half years.
Ministry of Finance (MOF) statistics released on Thursday showed a 0.3% year-over-year decline in Japanese exports in July, compared to the 0.8% drop predicted by analysts in a Reuters poll. It came after a month of growth of 1.5%.
An important indicator of capital spending increased in June, according to separate figures from the Cabinet Office. However, producers anticipate a drop in core orders for the current quarter, in part because to sluggish offshore demand.
Overall, the data set highlighted the fragility in Japan’s export engine, which underpinned better-than-expected GDP growth in the second quarter, with automobile exports and international tourism as the primary drivers.
Japan is the world’s third largest economy, and its policymakers are banking on exports to make up for the decline in private consumption brought on by price increases.
Concerns have been expressed, however, due to the possibility of a more severe global recession and the decelerating development of China, Japan’s most important trading partner.
In 2024, the World Bank predicts that the effects of increased interest rates and tighter lending will be felt more strongly.
Separate statistics released earlier showed ongoing reductions in Singapore’s exports, which are seen as a barometer of foreign demand given that trade flows dwarf the city-state’s GDP.
According to Norinchukin Research institute’s senior economist Takeshi Minami, “China remains weak and I don’t expect demand from Europe and America to accelerate further,” suggesting that Japan’s GDP may contract in the current quarter.
Japan’s biggest trade partner, China, saw a 13.4% year-over-year reduction in July due to lower shipments of automobiles, stainless steel, and micro-chips. This followed a 10.9% loss in June.
Following an increase of 11.7% in the previous month, the value of shipments destined for the United States increased by 13.5% year over year in March, driven by exports of electric cars and auto components.
A worker at the cargo yard of a Tokyo port.
Photo taken on July 19, 2017 shows a worker at a container area at a port in Tokyo, Japan. Image captured on July 19, 2017. Acquire the Rights to Use this REUTERS/Toru Hanai/File Photo
THE DARK FORECAST WILL KEEP BOJ ON HOLD
There are hazards to the global economy that the Bank of Japan has to be aware of. Given the potential for a downturn in economic activity elsewhere, the government “would be wise to delay any efforts to normalize monetary policy for the time being,” Minami said.
The Bank of Japan (BOJ) decided to leave its yield curve control (YCC) goals alone at its July meeting, but it did take certain measures to enable long-term interest rates to climb more freely in response to rising inflation and growth.
Data released on Thursday also showed imports decreased 13.5% year-over-year in July, which was lower than the consensus projection of a 14.7% drop.
The trade deficit widened to 78.7 billion yen ($537.27 million) from a surplus of 24.6 billion yen, which was the median forecast.
Core equipment orders in Japan increased by 2.7% in June, according to separate statistics.
Core orders, a volatile data category considered a predictor of capital investment in the following six to nine months, fell 5.8% when compared to the same period a year earlier.
Core orders are expected to decrease by 2.6% in the July-September quarter, according to a Cabinet Office poll of manufacturers, which, along with the decline in exports, points to mounting pressure on Japan’s economy.