Worsening Japan Export Drop Shows Covid Taking Heavier Toll

(Bloomberg) -- Declines in Japan’s exports unexpectedly steepened for the first time since May amid renewed declines in shipments to the U.S., as a resurgence of the pandemic took a heavier toll on global trade.

The value of overseas shipments fell 4.2% in November compared with a year earlier, accelerating from a 0.2% slide in October and breaking a five month streak of improvement, the finance ministry reported Wednesday. Economists had predicted a 0.4% gain. Auto exports dropped again after breaking into positive territory in October.

The trade reversal further darkens the outlook for Japan’s economy because exports have been a key driver of the recovery while service businesses struggle. Prime Minister Yoshihide Suga’s administration on Tuesday approved a third extra budget with another $210 billion in spending to fight the crisis.

Key Insights

• “Exports are likely to keep slowing from here after a solid recovery in the middle of the year,” said economist Taro Saito at NLI Research Institute. “Japan’s pickup will be fragile without strong foreign demand given that we expect a drop at home due to the recent surge in Covid cases and stronger calls for people to limit activity.”
• Record numbers of new cases and more hospitalizations in Japan forced Suga on Monday to suspend his travel discount campaign for over the New Year’s holiday. The move hits retailers, restaurants and hotels during one of the biggest spending seasons of the year and adds pressure on exports to carry the recovery.
• Shipments to China continued to gain in November, but the margin of improvement shrank. While China’s economy has rebounded more quickly than elsewhere from the pandemic, any slowdown in global trade will eventually hit demand from the crucial market.
• Japanese exports have now fallen for 24 months straight, hit first by trade wars and now by multiple waves of the coronavirus.

What Bloomberg Economics Says

“Looking ahead to next year, we expect a slow recovery in exports in 1Q. The timing of a pickup in shipments will hinge on how quickly the pandemic is contained. In 2Q, the supply of vaccines could breathe fresh life into demand for Japan’s exports.”

--Yuki Masujima, economist

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• Imports fell 11.1% from the prior year. Analysts had forecast a 9.5% drop.
• Shipments to the U.S. dropped 2.5%, falling for the first time in three months. Those to the EU declined 2.6%.
• Auto shipments fell 3%.
• Exports to China gained 3.8%.
• The trade balance was a 366.8 billion yen ($3.5 billion) surplus. Analysts had expected a surplus of 522.5 billion yen.

©2020 Bloomberg L.P.