Japan’s falling exports defy yen decline

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By Ben McLannahan in Tokyo

©Bloomberg

Exports from Japan dropped 1.3 per cent in August from a year earlier, providing another clear sign that a pick-up in external demand is not providing much of a boost to the country’s manufacturers.

The plunge in Japan’s currency under Prime Minister Shinzo Abe’s growth programme was supposed to have provided a powerful stimulus to exporters, making yen prices more attractive while allowing them to cut dollar prices to gain market share. Addressing parliament in April 2013, Mr Abe said that the lower yen would begin to “transform” the trade picture in the latter half of that year.

But shipments remain sluggish, even as the yen has resumed its falls against the US dollar. Provisional figures from Japan’s finance ministry on Thursday showed that the value of exports sagged 1.3 per cent in August from a year earlier to Y5.71tn ($52.6bn), dragged down in particular by weak shipments of chemicals (which accounted for 0.6 percentage points of the drop) and transport equipment (0.7 percentage points).

Policy makers have been vexed by the lack of a so-called “J-curve” in Japan – where a drop in a country’s currency tends to lead, over time, to a better trade balance. Some claim that the weak export performance reflects a fundamental loss of competitiveness in industries such as consumer electronics, where former titans such as Sony, Sharp and Panasonic have struggled to keep pace with the likes of Samsung and Apple. Others have argued that the devastation wreaked by the March 2011 earthquake and tsunami prompted customers to find new, non-Japanese suppliers.

But the most compelling explanation for the failure of “Abenomics” to spur exports is that manufacturers have responded to stronger growth prospects outside Japan by trying to align production with areas of consumption. Haruhiko Kuroda, Bank of Japan governor, touched on this theme in a speech to business leaders in Osaka on Tuesday, citing an “accelerated relocation of production overseas” as the main structural factor dragging on exports.

The US motor industry was a case in point, said Izumi Devalier, an economist at HSBC in Hong Kong, noting a clear “uncoupling” between strong sales of Japanese cars in the US – accounting for 40 per cent of total vehicle sales in August – and falling car exports to the country, dropping 10.2 per cent in July and 13.2 per cent in August.

“There are reasons to believe that shipments will continue to plod along at the same disappointing pace, even as US activity picks up and the yen stays weak,” she added.

The yen value of Japan’s imports also dropped in August, falling 1.5 per cent from the previous year to Y6.65tn, meaning that the monthly trade deficit – Japan’s 41st in a row, since the Fukushima crisis led to it buying more fuel – narrowed slightly to Y948bn.

 

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