Japan Exports Drop Steeply Even as China Trade Rebounds

(Bloomberg) --

Japanese exports continued to drop steeply in July but fell by the smallest margin in four months as a recovery in shipments to China helped cushion declines to Europe and other key markets where the coronavirus is spreading rapidly.

The value of Japan’s overseas shipments declined 19.2% from a year earlier amid continued steep falls for cars and auto parts, the finance ministry reported Wednesday. The overall slide was slightly better than economists’ projection for a 20.9% drop, but still far short of indicating a strong rebound.

A separate report showed machinery orders fell by 7.6% in June from the previous month, suggesting that a revival in capital spending could be delayed. Analysts had forecast a 2% gain in the volatile data.

Key Insights

• Exports -- a key driver of Japan’s growth -- remain subdued even as key markets reopen. A sharp rise in virus cases in Europe and in some parts of the U.S. suggest any recovery in shipments could be a long way off.
• Still, an increase in exports to China, the country first to succumb to the virus and the first to bounce back, helped the overall export decline from being worse. But heightened trade tension between Beijing and Washington is a risk to the outlook.
• “The fall in auto is getting less severe, although it’s probably still the largest reason for declines in Japan’s exports,” said economist Takeshi Minami at Norinchukin Research Institute. “Trade volume will only recover so much, and then you’re in a state of wait-and-see. Unless vaccines are developed the impact on exports will continue.”
• Despite climbing infection rates in recent weeks, Japan is still coping with the virus far better than the U.S. and other major markets, but the economy’s reliance on trade makes its recovery precarious. Declines in net exports accounted for almost 40% of the economy’s record contraction in April-June, underscoring its vulnerability to world markets.

What Bloomberg’s Economist Says

“Looking ahead, we expect exports to continue their recovery in 3Q. Imports will probably recover at a more or less similar pace.”

--the Asia Economist Team

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• Exports of cars dropped 30%, those of auto parts fell 32.5%.
• Overall shipments to the EU declined 30.5%, while those to the U.S. dropped 19.5%, improving from a decline of almost 50% a month earlier. Exports to China rose 8.2%, the first increase since December 2019.
• Imports slumped 22.3%, about in line with the analysts’ forecast for a 23% drop.
• The trade balance was a 11.6 billion yen ($110 million) surplus. The projection was for an 86.5 billion yen deficit.
• Compared with a year earlier, machinery orders dropped 22.5% in June. Economists projected a 17.5% drop.

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