Japan exports fall for first time since 2021, stoking concerns about economy

By Tetsushi Kajimoto

TOKYO (Reuters) -Japan's exports fell in July for the first time in nearly 2-1/2 years, dragged down by faltering demand for light oil and chip-making equipment, underlining concerns about a global recession as demand in key markets such as China weaken.

Japanese exports fell 0.3% in July year-on-year, Ministry of Finance (MOF) data showed on Thursday, compared with a 0.8% decrease expected by economists in a Reuters poll. It followed a 1.5% rise in the previous month.

Separate data from the Cabinet Office showed a key gauge of capital expenditure rose in June. However, manufacturers are braced for core orders to slide during the current quarter, partly due to weak offshore demand.

Overall, the batch of data underscored fragility in Japan's export engine, which helped underpin better-than-expected second quarter domestic product (GDP) growth, with car shipments and tourism the biggest drivers.

Japanese policymakers are counting on exports to shore up the world's No. 3 economy and pick up the slack in private consumption that has suffered due to rising prices.

However, the spectre of a sharper global slowdown and faltering growth in Japan's major market China have raised concerns about the outlook.

The World Bank has warned that higher interest rates and tighter credit will take a bigger toll on global growth in 2024.

Concerns about global growth was underscored by separate data earlier showing persistent declines in Singapore's exports, seen as a gauge of overseas demand as trade flows dwarf the city-state's economy.

"China remains weak and I don't expect demand from Europe and America to accelerate further," said Takeshi Minami, chief economist at Norinchukin Research institute, adding that Japan's economy may suffer a downturn in the current quarter.

By destination, exports to China, Japan's largest trading partner, fell 13.4% year-on-year in July, due to drops in shipments of cars, stainless steel and micro-chips, following a 10.9% decline in June.

U.S.-bound shipments rose 13.5% year-on-year last month to the largest in value on record, led by shipments of electric vehicles and car parts, following a 11.7% rise in the previous month.

GLOOMY OUTLOOK TO KEEP BOJ ON HOLD

"The Bank of Japan must be aware of downside risks from the global economy. Therefore, it would have no choice but to avoid any efforts to normalise monetary policy for the time being given the risk from external slowdown," Minami said.

At its July meeting, the BOJ kept its yield curve control (YCC) targets unchanged but took steps to allow long-term interest rates to rise more freely in line with increasing inflation and growth.

Thursday's data also showed imports fell 13.5% in the year to July, versus the median estimate for a 14.7% decrease.

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The trade balance swung to a deficit of 78.7 billion yen ($537.27 million), versus the median estimate for a 24.6 billion yen surplus.

Separate data showed Japan's core machinery orders rose 2.7% in June from the previous month.

Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, declined 5.8%.

Manufacturers surveyed by the Cabinet Office forecast that core orders will fall 2.6% in the July-September quarter, which taken together with the weakness in exports suggest rising pressure on Japan's economy.

"On their own, the July trade figures still point to a small boost from net exports across Q3," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.