Japan Sees Slowdown In Exports To Major Markets

Japan's trade surplus narrowed in July for the first time in nine months as rising commodity prices pushed up the country's import bill and exports were sluggish to major markets such as the U.S. and Europe.

Government data released Wednesday showed that Japan's trade surplus with its three biggest markets - the U.S., Europe and Asia - all declined last month, the first time that has happened since January 2005. The data could be an ominous sign for the Japanese economy, which relies heavily on exports for growth. Some analysts say that exports could slow further due to weak global demand for Japanese goods amid financial market turmoil, and the recent strengthening of the yen. "Given the recent financial market turbulence, the downside risk to global growth now looks larger than before," said Lehman Brothers economist Hiroshi Shiraishi. The sharp appreciation of the yen over the past few weeks "is an additional risk to Japan's export growth," he said. Data released by the Ministry of Finance showed that Japan's merchandise trade surplus in July narrowed 21.1% on year to Y671.2 billion, larger than the 10.2% fall forecast by private economists. Japan's trade surplus with the U.S. contracted 4.1% on year, its first decline in two months, while the surplus with the euro zone slipped for the first time in 21 months, declining 6.5%. Its surplus with the rest of Asia fell 1.9%. "Until now, the slowdown in exports was mainly seen with the U.S., but this trend may spread to other regions," said Yuji Kameoka, chief analyst at Daiwa Institute of Research. That "would weaken the overall economy in Japan," he said. Exports account for about 15% of Japan's gross domestic product. Although private consumption and corporate capital spending together make up a much bigger portion of the economy, consumption has been sluggish, while capital expenditures may slow after about four years of strong growth. That means that Japan's economy may need steady export growth to continue expanding. But exports might not pick up much with the economic outlook for Japan's biggest markets, including the U.S., cloudy because of the financial jitters stemming from subprime mortgage woes.

Exports To Major Markets Slow

Indeed, Wednesday's data showed export growth to the U.S. slowed to 1.3% in July from a rise of 6.7% in June. Exports to the Euro zone increased 13.1% in July from an 16.3% rise in June, while export growth to Asia slowed to 13.8% from 15.8% in June. "While a big slump is unlikely, risks might be higher than we expect that growth in Japanese exports will slow to a crawl," said Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute. "It's even possible that lingering instability in markets will hold back stock prices and dent consumer sentiment globally," which could weigh on exporters in Japan, he said. The dollar has been highly volatile against the yen in recent days, falling as low as Y111.60 on Friday from about the Y117 mark earlier last week. A strong yen cuts into Japanese exporters' profits. Meanwhile, global commodity prices such as those of oil have been rising sharply amid global inflation trends, pushing up Japan's import bill. For example, prices of crude oil produced in Dubai, which is mostly used in Japan, reached the $70 level per barrel in July from the $60 mark in June. "It's necessary to keep an eye on market moves" for clues on the future course of Japanese exports and its economy as a whole, Shimamine said.