Japan exports underwhelm in June, global weakness drags on economy

TOKYO: Japan’s annual exports grew much-less than expected in June, highlighting weak Chinese and Western demand that continues to undercut the post-COVID recovery in the world’s third-biggest economy.

The risk of a world recession amid sweeping monetary policy tightening since last year has cast a pall over export-led economies, with many countries including Japan relying on domestic consumption to underpin growth.

The trade data, released by the Ministry of Finance (MOF) on Thursday, showed exports rose 1.5% year-on-year last month, below the 2.3% gain expected by 15 economists in a Reuters poll, but faster than a 0.6% rise in May.

Exports were led by U.S.-bound shipments of cars and mining machinery, while China-bound shipments of steel, chips and nonferrous metal caused a double-digit decline in overall exports to China.

“The effects of U.S. and European rate hikes aimed at curbing demand and inflation will persist from now on, while the Chinese economy is struggling despite some stimulus steps, all of which deprive the global economy of a growth engine,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Going forward, it could be hard for Japan to maintain a trade surplus in a stable manner unless exports regain strength and global commodity prices keep import costs low.”

Imports fell 12.9% year-on-year in June, versus the median estimate for a 11.2% decrease. The decline in the value of imports, caused by drops in crude, coal and liquefied natural gas, should help ease concerns about rising costs of purchases.

The overall trade numbers produced a trade surplus of 43 billion yen ($308.11 million), confounding the median estimate for a 90.1 billion yen deficit.

A weak yen and surging import costs have led to nearly two years of trade deficits in Japan, another challenge for policymakers hoping to shore up a fragile recovery following the end of COVID curbs.

By region, exports to China, Japan’s largest trading partner, fell 11% year-on-year last month, due to drops in shipments of steel, chips and nonferrous metal, following a 3.4% decline in May.

U.S.-bound shipments, Japan’s major ally, rose 11.7% year-on-year in June, led by shipments of cars, construction and mining machinery, following a 9.4% rise in the previous month.