By Tetsushi Kajimoto and Makiko Yamazaki
TOKYO (Reuters) -Japan’s weak yen sharply boosted the value of exports in May but the volume of sales shrank for the fourth consecutive month, highlighting that global demand is still relatively soft and complicating the central bank’s monetary tightening path.
The Bank of Japan last week took a step forward to reduce its huge bond purchases as part of plans to exit years of massive stimulus. The soft underbelly in the trade report though adds to the picture of a fragile economy, making future interest rate hikes far from assured.
Shipments rose 13.5% year-on-year in value terms in May, driven by U.S.-bound shipments of cars and China-bound chip-making machinery, data from the Ministry of Finance (MOF) showed on Wednesday. That compared with a 13.0% increase seen by analysts in a Reuters poll and an 8.3% gain in April.
Exports in terms of volume, however, dipped 0.9% year-on-year in May, reflecting tepid global demand.
“The big increase in exports was caused by the weak yen, but actual demand was not that strong,” Takeshi Minami, chief economist at Norinchukin Research Institute, said.
“Europe-bound exports are weakening, U.S.-bound shipments are peaking out and demand from China is struggling to grow,” Minami said. “As overall exports are likely to slow down going forward, you cannot expect exports to become a main engine of growth over the next 1-2 years.”
China’s economy, a key engine of global growth, has struggled to mount a solid post-COVID recovery amid a protracted property sector crisis.
That has undermined the economies of major exporting nations like Japan and put more of the onus on consumers at home to boost overall growth.
The underlying weakness in overseas demand could shatter policymakers’ hopes that exports will offset tepid domestic consumption.
The trade data came on the heels of Reuters Tankan that showed confidence among big manufacturers fell in June. The batch of data underscores the uneven nature of economic recovery.
Analysts at Capital Economics expect net trade to drag on Japan’s second quarter gross domestic product growth, forecasting the economy to expand a modest 0.2% quarter-on-quarter after it contracted 0.5% in the previous three months.
Wednesday’s data showed imports grew 9.5%, compared with expectations for a 10.4% rise. They rose 8.3% in April. That left the trade balance at a deficit of 1.22 trillion yen, smaller than an average analyst estimate of 1.31 trillion yen in deficit.
Car sales were the biggest contributor to the overall growth in exports, rising 13.6% in value. The volume of such exports, however, dropped 1.4%, indicating that the value was inflated by the weak yen.
By destination, exports to China rose 17.8% year-on-year in May, led by demand for chip-making machinery, the trade data showed.
U.S.-bound shipments, Japan’s ally and key market, grew 23.9% year-on-year in May, posting the largest percentage increase since November 2022, while those to European Union fell 10.1%.
($1 = 156.2200 yen)
