Japan’s Exports Decline Again Amid Weakening Global Demand

Japan’s export market is experiencing a downturn as international demand plummets, raising substantial economic concerns due to the country’s significant reliance on foreign demand. In August, export values saw a 0.8% drop, primarily driven by a decrease in mineral fuel and chip-making machinery exports. Alarmingly, this downturn surpasses initial expert predictions and follows a two-year high in July, indicating a worrying trend of month-on-month declines.

This export slump suggests a tightening of spending both domestically by consumers and businesses, potentially stifling domestic growth. Notably, recent data indicates that Japan’s economy saw growth in the second quarter primarily due to overseas demand.

Koya Miyamae, an economist at SMBC Nikko Securities Inc., highlights the ongoing struggle, stating that despite some recovery in the auto industry, other sectors are facing challenges. Particularly, sluggish shipments to China and other parts of Asia are dragging down overall exports.

The global economy, particularly the manufacturing sector, shows signs of exhaustion, as evidenced by the low August Purchasing Managers’ Index figures from the US and Europe. Taro Kimura, another economist, suggests that the export slump can be attributed to a worldwide electronics slump and reduced demand from major trading partners like China and the US. Additionally, he points out that the drop in August imports likely reflects falling coal and natural gas prices.

Japan has also seen a decline in imports over the past five months, offering some respite from cost-driven inflation. However, this drop also signifies a decrease in domestic demand, an unsettling sign given the current overseas growth slowdown.

Saisuke Sakai, a senior economist at Mizuho Research & Technologies, warns of potential renewed price pressures due to the weakening yen and rising crude oil prices, which could lead to increased import costs and consumer prices.

As of Wednesday, the exchange rate was 142.23 yen against the dollar, representing a 5.3% drop from the previous year. This weak yen, along with significant policy differences between Japan and other countries, has led the finance ministry to announce its willingness to intervene in foreign exchange markets if the yen’s volatility becomes excessive.

In conclusion, these recent trade figures present a concerning outlook for Japan’s economy, with falling global demand and limited domestic growth drivers.