Posted on 24 Jun 2010
Japan's export growth slows, no effects from Europe
Japan's annual export growth slowed for a third consecutive month in May in a sign that its overall economic growth could start to slow as the pace of recovery in overseas demand moderates.
Exports also fell 1.2 percent from the previous month on a seasonally adjusted basis as signs of weakness in the U.S. economic recovery and steps to curb bank lending and investment in China hampered demand for Japanese goods.
External demand is likely to continue to make a positive contribution to Japan's gross domestic product due to demand from Asia. But analysts say this positive contribution could shrink as global restocking of inventories runs its course.
They are also cautious about the outlook as Europe's debt problems and recent yen strength could slow Japanese shipments in the coming months.
"Exports grew at a slower-than-expected pace apparently due to the effects of China's tightening" of banks' reserve requirements, said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
"Europe's debt crisis is also expected to impact China's exports to Europe in the coming months as the euro's drop hurts Chinese firms' competitiveness. This in turn is likely to prevent Japan's exports from recovering fully."
Exports rose 32.1 percent in the year to May on gains in shipments of cars, steel and semiconductors, less than the median forecast for a 36.9 percent rise, the Ministry of Finance said.
Export growth has been slowing after shipments rose an annual 45.3 percent in February, the largest gain since 1980.
Exports to fast-growing Asia including China, which accounts for more than half of Japan's total shipments, rose 34.4 percent from a year earlier, slowing for the fourth consecutive month after they jumped a record 68.3 percent in January
Economists polled by Reuters expect Japan's economic growth to slow to 0.4 percent in April-June from the 1.2 percent seen in the first quarter, partly as the effects of government stimulus fades and export growth moderates.
They expect the world's No.2 economy to grow 2.5 percent in the fiscal year to next March, largely in line with government projections and more than the Bank of Japan forecast.
The government has vowed to achieve an average 2 percent real growth over the next 10 years by carrying out its growth strategies. But analysts say this will be a tall order given that the economy grew a meagre 1.3 percent on average in the decade until the financial crisis in 2008 that led to a global recession.
NO EFFECTS FROM EUROPE
A finance ministry official said the trade data showed no effects from Europe's debt problems. But the ministry will keep an eye on its impact on Japan's exports in the future, he said.
Shipments to the European Union rose an annual 17.4 percent due to demand for auto parts and electronics parts from Germany. Annual growth has slowed for the second straight month after a 26.7 percent rise in March, the biggest gain since 1998.
Yoshimasa Maruyama, an economist at Itochu Corp, said Japan's real exports to the EU grew 2.4 percent from the previous month, with capital goods such as chemicals and metal products marking double-digit gains.
"I guess the euro's weakness helped boost exports and output in countries like Germany, which has in turn increased demand for Japanese parts and materials," Maruyama said.
"There was no major change in the trend that expansion in emerging Asia leads the world economy. Therefore Japan's exports will continue to grow, but the pace of growth will be slower compared with the past year as global restocking of inventory runs its course."
Slowing export growth was also evident in shipments to the United States, a key destination for Japanese goods. U.S.-bound exports rose an annual 17.7 percent, but pace slowed from a 50.5 percent rise in February, the biggest gain since 1984.
The Federal Reserve acknowledged the faltering pace of U.S. economic recovery on Wednesday as it renewed its vow to hold benchmark interest rates exceptionally low for an extended period.
In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, recognising pockets of weakness, and also issued a cautionary note about volatile financial markets in light of Europe's debt woes. [ID:nN22150078]
Japan's finance ministry is also watching any effects from China's yuan policy on the country's trade, the official said, adding that it could have both merits and demerits.
China's trading partners are anxious for Beijing to spell out how quickly it will let the yuan rise after it said on Saturday that it was ending the currency's 23-month-old peg to the dollar.
Japan's overall imports rose 33.4 percent in May from a year earlier, marking the biggest gain since 2006 and bringing the country's trade surplus to 324.2 billion yen ($3.61 billion).
