The volume of Japanese exports has fallen for the fourth time in five months, depressed by the sharpest fall in exports to Asia in more than two years.
Global export volumes were down 2.5 per cent on the year in May, according to Wednesday’s provisional figures from the Ministry of Finance. Export volumes to Asia dropped by 4.7 per cent. The value of exports rose by only 1.4 per cent to Y4,796bn - the smallest rise in almost two years.
The figures provide further evidence that Japan can no longer rely on external demand for its economic growth. Japan economists are heatedly debating whether the domestic market is strong enough yet to take up the slack, keeping economic growth going if demand from other countries falters.
Lehman Brothers said: “Today’s report confirms that external demand remains weak. We expect exports to remain subdued during the course of this year.”
Analysts think the recent low figures for exports to Asia could signify that Japanese companies are relying increasingly on building those products destined for the Asian market within the Asian mainland itself. Specifically, the MoF figures also showed a decline in the value of exports to China - the main Asian location for Japanese factories - despite continued strong growth in the Chinese economy. No volume figures were available for Chinese exports.
The overall value of imports to Japan rose 18.6 per cent to Y4,499bn - the sharpest increase since November - boosted by high oil prices. The value of crude oil imported in May was Y638bn, a 65 per cent increase on the year before.
The sharp rise in the import value is a reminder that Japanese corporate costs are increasing because of higher prices for oil and other materials. Japanese companies released a cautious set of earnings forecasts for 2005-06 during their spring results season, citing higher materials prices.
Analysts criticised them for excessive caution at the time, but Wednesday’s trade figures provide some basis for companies’ conservatism about future earnings.
The increase in import values pushed down the trade surplus by 68 per cent to Y297bn.
The yield on Japanese government 10-year bonds fell slightly on the news, as money fled into safer assets.
The one bright spot in this otherwise dismal picture is exports to the US - up 3.4 per cent by value and 1.9 per cent by volume. “We believe that they will hold up on the back of relatively strong economic activity there,” said Barclays Capital.
Naoki Murakami, economist at Goldman Sachs, found another cause for optimism: the strong import figures suggested “robust domestic demand”. Import volumes were up 8.6 per cent, the highest rise this year.
Some economists see the recent combination of fairly strong domestic figures and poor export numbers as a good sign, arguing that it suggests the Japanese economy - previously highly reliant on exports - has at last started to grow under its own steam.