Exports fell less than economists expected as the decline in auto shipments slowed, government data showed Thursday, underscoring the economic recovery from the March 11 earthquake and tsunami.
Exports decreased 1.6 percent in June from a year earlier, the slowest fall in four months and following a 10.3 percent drop in May, the Finance Ministry said. The median estimate of 27 economists in a survey was for a 4.1 percent decline.
Shipments are recovering as manufacturers such as Toyota Motor Corp. restore production damaged by the record quake. Still, export growth may be threatened by the yen’s gain to a four-month high against the dollar, a U.S. economic deceleration and fallout from the European sovereign debt crisis.
“The effects of economic slowdown abroad have been limited so far, and supply chain problems have been mitigated, enabling a continued recovery of exports,” Mae_SDHpsayuki Kichikawa, chief economist at Bank of America Merrill Lynch in Tokyo, said before the report was issued.
“The immediate problem is the sharp rise of the yen in the currency market, and a key issue is how the government and the Bank of Japan will respond.”
The yen has gained almost 4 percent in the past three months, and rose to a four-month high of 78.47 on July 14.
The slower-than-expected decrease in exports helped Japan unexpectedly post a trade surplus last month, of ¥70.7 billion, the first in three months. Overseas shipments increased 5.4 percent in June from May on a seasonally adjusted basis, the fastest gain since February, according to the ministry report.
Economic data so far have underscored the corporate sector’s rebound from the March disaster.
Industrial production rose at the fastest pace in more than 50 years in May, led by carmakers. Large companies plan to boost capital spending 4.2 percent this business year, more than economists forecast, the BOJ’s most recent “tankan” survey showed.
Toyota may return to unrestricted production of all models in October, two weeks earlier than previously planned, Executive Vice President Atsushi Niimi said July 4.
Automobile exports decreased 12.5 percent from a year earlier, the slowest decline since February, according to Thursday’s report.
Komatsu Ltd., the world’s second-largest construction machinery maker, said domestic orders increased more than 30 percent in the second quarter from a year earlier, spurred by reconstruction demand, Chief Executive Officer Kunio Noji said last month.
The risk for the export-led recovery is a cloudy overseas outlook. The U.S. unemployment rate rose to 9.2 percent in June, the highest this year, as hiring slowed and earnings stagnated, while manufacturing growth slowed in China, Japan’s biggest export market. Investor concern over debt levels in Italy and Spain sent bond yields in those nations to euro-era records this week.
“There’s a high chance that an economic recovery will be weaker than expected, given the high U.S. jobless rate, the European fiscal problems, and the yen’s gain,” Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co., said before the report.
The BOJ will take “decisive” policy action when needed while watching the economy and exchange rates, Deputy Gov. Hirohide Yamaguchi said Wednesday. The yen’s advance could become “problematic” if it becomes a trend, Finance Minister Yoshihiko Noda said last week.
Exports to China rose 1.2 percent in June from a year earlier, the first advance in three months, the report shows. Exports to Europe increased 8 percent, gaining for the first time since March.
Shipments to the U.S. fell 6.1 percent, the slowest pace of decline since March. Imports rose 9.8 percent in June from a year earlier.
Prime Minister Naoto Kan has pledged to step down once the disaster is contained. Political wrangling forced Kan to scale back the second extra budget for rebuilding to ¥2 trillion, only half the size of the first one.
The economy may grow at a 4.3 percent annual pace this quarter after contracting at 3 percent in the three months through June, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released July 11. The economy shrank 3.5 percent in the first quarter.
Calls for intervention
Business leaders hope monetary authorities will intervene in the foreign exchange market to arrest the recent persistent strength of the yen.
Tadashi Okamura, chairman of the Japan Chamber of Commerce and Industry, said Wednesday it is time that the authorities intervened in the market as the dollar’s current level below ¥80 is “abnormal.”
Yasuchika Hasegawa, chairman of the Japan Association of Corporate Executives, said other countries are scrambling to drive down the value of their currencies to increase the competitiveness of their manufacturers and that Japan should do the same.
They made their comments after Bank of Japan Deputy Gov. Hirohide Yamaguchi voiced concern Wednesday about the yen’s recent strength against the dollar and other major currencies, warning of a “hollowing out of industry” with companies moving their production bases abroad in the pursuit of lower costs.
Reactor export issue
Prime Minister Naoto Kan said Thursday that Japan should debate whether to continue promoting exports of nuclear technology in light of the Fukushima crisis.
“Following the crisis, our basic mind-set is to promote it with increased safety, but we are in the stage where we should once again hold proper discussions,” Kan told the Upper House Budget Committee.
Prior to March 11, the government had actively promoted exports of nuclear technology as a source of economic growth. Japan sought an accord last year to build nuclear plants in Vietnam.
The nuclear crisis has forced the government to rethink the nation’s basic energy policy.
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