Japan’s exports fell in July for the first time in nearly two and a half years, dragged down by weak demand for light oil and chip-making equipment, highlighting fears of a global recession as key markets such as China weakened.
Japanese exports decreased 0.3% year over year in July, versus a 0.8% decline that economists predicted in a Reuters poll, according to data released Thursday by the Ministry of Finance (MOF). It followed a 1.5% rise in the previous month.
Separate data from the Cabinet Office showed that a key measure of capital expenditures increased in June. Nonetheless, manufacturers anticipate a decline in core orders during the current quarter, in part due to the impact of weak offshore demand.
Overall, the data highlighted the fragility of Japan’s export engine, which contributed to domestic product (GDP) growth in the second quarter, with car shipments and inbound tourism being the primary drivers.
Japanese policymakers are counting on exports to bolster the world’s third-largest economy and offset the decline in private consumption caused by broader price increases.
Concerns have been raised regarding the future, however, due to the specter of a sharper global slowdown and China’s faltering growth.
Separate data indicating persistent declines in Singapore’s exports, viewed as an indicator of overseas demand given that trade flows dwarf the city-state’s economy, bolstered earlier concerns about global growth.
“China remains weak and I don’t see demand from Europe and America to accelerate further,” said Takeshi Minami, chief economist at Norinchukin Research institute, adding that Japan’s economy may suffer a downturn in the current quarter.
Exports to China, Japan’s largest trading partner, decreased 13.4% year-over-year in July due to decreases in shipments of automobiles, stainless steel, and IC chips, following a 10.6% drop in June.
Following an 11.7% increase the previous month, the value of shipments to the United States, Japan’s most significant trading partner, increased by 13.5% year over year to a record high last month.
Rising Pressure on Japan’s Economy: Exports and Core Orders Dynamics
“The Bank of Japan must be aware of downside risks from the global economy. Therefore, it would have no choice but to avoid any efforts to normalise monetary policy for the time being given the risk from external slowdown,” Minami said.
At its July meeting, the BOJ maintained its yield curve control (YCC) targets but took steps to permit longer-term interest rates to increase more freely in response to rising inflation and economic growth.
Imports fell 13.5% year-over-year through July, compared to the median estimate of a 14.7% decline.
The trade balance shifted to a deficit of 78.7 billion yen ($537.27 million), as opposed to the median estimate of a surplus of 24.6 billion yen.
Japan’s fundamental machinery orders increased by 2.7% in June compared to the preceding month. However, when compared to the same period a year ago, core orders, which are considered a volatile indicator of upcoming capital spending over the next six to nine months, experienced a decline of 5.8%.
Manufacturers surveyed by the Cabinet Office predict a drop of 2.6% in core orders for the July-September quarter. When combined with the decline in exports, this indicates a growing strain on Japan’s economy.
“On their own, the July trade figures still point to a small boost from net exports across Q3,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
“But even if that were the case, GDP growth will surely slow sharply,” he added.
($1 = 146.4800 yen)