Japan’s Exports Continue to Drop as Global Slowdown Weighs

(Bloomberg) -- Japan’s exports dropped for a tenth month in September as weakness in demand overseas continued to batter manufacturers ahead of a key central bank review of the impact of the global slowdown on the world’s third-largest economy.

Shipments abroad fell 5.2% to extend the longest declining streak since 2016, according to a report released by the Ministry of Finance on Monday. The median estimate of economists was for a 3.7% decrease. Double-digit falls in auto parts and semiconductor-making equipment were among the biggest contributors to the drop.

Key Insights

• The Bank of Japan will assess the impact of economic weakness abroad on the domestic economy and inflation later this month. Some analysts see the review as a signal of impending action from the central bank. A critical question for the BOJ is whether weakness in exports will spread to domestic demand and pull down inflation.
• Any delay to a recovery in the global economy would come at a vulnerable time for Japan’s economy with a sales tax hike implemented this month likely to weaken consumer spending and shrink economic growth in the last quarter.
• While a truce in the U.S.-China trade war could lower the risks faced by the global economy, it remains to be seen how both processes will evolve and what the effect will be on trade at home and abroad.
• The export data isn’t encouraging, even if a trade truce offers a ray of hope that the gloomy export trend will improve, according to Takeshi Minami, chief economist at Norinchukin Research Institute. “Since uncertainties remain high over the global economy, there is a risk we’ll see concerns intensifying over Japan’s economy falling into recession,” he said.
• Still, some economists are taking the view that the global IT cycle may have hit the bottom. That could provide a lift for Japan’s exports going forward.

What Bloomberg’s Economists Say

“The extended downturn in Japan’s trade isn’t encouraging ahead of the central bank’s review on the impact of the global slowdown on growth and prices later this month. Yet, we believe the current trend does not deviate much from the Bank of Japan’s baseline scenario at this point.”

--Yuki Masujima, economist

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• Imports fell 1.5% in September, versus economists’ median estimate of a 2.8% decrease.
• Exports to China dropped 6.7% while exports to U.S. slipped 7.9%.
• The trade balance was a 123 billion yen ($1.1 billion) deficit, compared with a 54 billion yen surplus estimated by economists.
• Overall shipments of auto parts fell 14.7% while chip-making machinery exports dropped 12.9%.

--With assistance from Tomoko Sato.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Go Onomitsu

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