Brisker Japanese Export Growth

August 21, 2008

The year-over-year growth in export volumes, which halved to 4.9% in the second quarter from 10.1% in 1Q08, rebounded last month to a much stronger-than-expected 7.4%.  Export values increased 8.1% despite an 11.5% on-year drop in shipments to the United States.  Such was more than offset by exports to neighboring Asia, which expanded 12.7% overall and by 35.4%, 27.2%, 27.0%, and 16.8% respectively to Indonesia, Vietnam, Singapore, and China.  Japanese exports to Asia are now three times greater than exports to the United States.  In July 2005, the ratio of exports to Asia compared to exports headed to the United States was 2.2, and three years before that (i.e., in July 2002) it was 1.5.  The ratio has doubled in a remarkably short six years.  Despite the brisk rise of exports, which will not be sustained in the face of softer global demand, Japan’s trade surplus narrowed 87% from July 2007 because of a fuel-injected 18.2% on-year surge in imports.  The seasonally adjusted trade surplus in June-July averaged Y 151 billion per month, down from Y 900 billion per month in calendary 2007.

Aside from improved exports in July, the third quarter is not shaping up well.  The all-industry index ended the second quarter 0.5% below the quarterly average, with construction off 1.1%, service activity down 0.6%, and industrial output about flat.  Consumer confidence in July had a reading of 31.4, 3.4 points below the worst reading of the notoriously bad 1990’s, which was 34.8 in 3Q98.  The economy watcher’s index was at 29.3 in July, down from 44.7 a year earlier and 57.3 as recently as March 2006.  Wholesale price inflation has shot up to a 27-year high of 7.1%, squeezing profits.  The index of coincident economic indicators has been 30.0 or less since March, well under the the 50 break-even level.  Monthly Tankan gauges estimated by Reuters sank to their lowest levels in August since March 2003 for manufacturing and December 2003 for the rest of the economy.  Core domestic machinery orders are projected by officials to drop 3.0% in 3Q after firming fractionally last quarter.  The government continues to prepare markets for the possibility of a second consecutive quarter of negative GDP growth following -2.4% at a seasonally adjusted annualized rate in 2Q08 and isn’t waiting for confirmation of such before introducing a modest fiscal stimulus whose unveiling has been promised for any day now.



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