Japan’s Export Slump Drags on Even as Markets Reopen

Japanese exports fell by more than 20% for a third straight month even as key markets started to reopen from virus shutdowns.

The value of Japan’s overall shipments overseas slid 26.2% in June from a year earlier, led by steep declines in exports of cars and auto parts, the finance ministry reported Monday. Economists forecast a 24.7% fall.

Although exports continued to be down sharply compared with the previous year, there were signs declines may have bottomed. Car exports halved in June compared with falls of around two-thirds in May. Overall drops in exports to the U.S. and the EU were about 4-5 percentage points less than in the prior month.

Key Insights

  • Economist Takeshi Minami at Norinchukin Research Institute said the worst appeared to be over for Japan’s trade slump, but the pace of recovery is likely to be slow, as rising infection rates in the U.S. and elsewhere hamper efforts to reopen. “At best, trade will see a gradual recovery,” he said.
  • Japan’s reliance on exports for growth makes its overall recovery prospects precarious. The International Monetary Fund last month cut its outlook for Japan and the rest of the world economy, projecting a deeper recession and slower rebound than it saw just two months earlier.
  • Bank of Japan Governor Haruhiko Kuroda, speaking last week, said he expects Japan’s economy to improve gradually in the second half of the year, but the risks are skewed to the downside.
  • Improving shipments to China have helped prevent Japan’s export declines from being even worse. Shipments to the world’s second-largest economy dropped just 0.2% in June, compared with last year.

What Bloomberg’s Economist Says

“Looking ahead, exports are likely to continue to recover in 3Q — depending on the shape of the recoveries in demand in the U.S. and Europe. Imports should also recover at around the same pace, reflecting reduced restrictions on domestic activity.”

–The Asia Economist Team

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  • Exports to the U.S., Japan’s biggest overseas buyer last year, fell 46.6%. Shipments to the EU dropped 28.4%.
  • Overall car shipments fell 49.9%, those of auto parts slid 52.3%.
  • Imports declined 14.4%, narrowing from a 26.2% slide in May as domestic activity rebounded after the end of a nationwide state of emergency in late May. Analysts expected a 17.6% drop.
  • The trade balance was a 268.8 billion yen ($2.5 billion) deficit.

— With assistance by Tomoko Sato

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