Japan’s Export Growth Slows as U.S. Shipments Decline

By Makiko Yamazaki and Satoshi Sugiyama
TOKYO (Reuters) – Japan’s export growth saw a significant slowdown in August, with shipments to the U.S. experiencing their first drop in three years. Additionally, machinery orders unexpectedly shrank in July, raising concerns for an economy struggling to recover steadily.

Analysts indicate that weak external demand complicates Japan’s efforts for sustainable economic growth, especially with looming risks of a U.S. slowdown and further weaknesses in China’s economy, which are two of Japan’s major trading partners.

Takeshi Minami, chief economist at Norinchukin Research Institute, stated, “Japan’s exports are bound to struggle as the global economy is failing to pick up momentum, with growth in both the U.S. and China economies seen slowing down next year.” He added that the previously beneficial impact of the weak yen on exports has diminished due to a sharp rebound of the Japanese currency in August.

Total exports rose by 5.6% year-on-year in August, marking the ninth consecutive month of growth. However, this increase fell short of the market’s median forecast of a 10% rise, especially given July’s 10.3% growth.

Exports to the United States dropped by 0.7% for the first monthly decline in nearly three years, driven by a 14.2% slump in auto sales. Conversely, exports to China, Japan’s largest trading partner, increased by 5.2% compared to the previous year.

In terms of volume, shipments decreased by 2.7% year-on-year in August, constituting the seventh straight month of decline. Import value grew by 2.3% in August, which was significantly lower than the expected 13.4% increase, resulting in a trade deficit of 695.3 billion yen ($4.90 billion), contrasting with forecasts of 1.38 trillion yen.

Separate data from the Cabinet Office revealed that core machinery orders unexpectedly fell by 0.1% in July compared to the prior month, against expectations of a 0.5% increase. However, year-on-year, core orders rose by 8.7%, surpassing the anticipated 4.2% increase. The government maintained its stance that machinery orders are at a standstill in their recovery.

Despite a rebound in personal consumption that helped Japan’s economy recover in the second quarter, that growth was revised down slightly last week. A Reuters survey also showed that business confidence among major Japanese manufacturers dropped to a seven-month low in September, with many managers voicing concerns over weak demand from China.

The Bank of Japan is anticipated to uphold its monetary policy during a two-day meeting concluding on Friday, while also indicating forthcoming interest rate hikes and progress toward maintaining inflation around the 2% target. Minami expressed a general expectation that consumption would support Japan’s growth but warned, “with little hope for a boost from exports, the momentum of recovery would be weak.”