Japan’s Exports Surge Amid Second Quarter Economic Recovery Prospects
Japan’s export sector marked a significant upswing in June, extending its growth streak for the seventh consecutive month. This development bolsters expectations that the economy will rebound in the second quarter after a sluggish start to the year.
According to the Finance Ministry’s report on Thursday, exports rose by 5.4% compared to a year earlier, driven primarily by increased shipments of chip-making equipment and non-ferrous metals. However, this figure fell short of economists’ forecasts, which had anticipated a 7.2% increase.
Conversely, imports grew by 3.2%, a figure significantly lower than the 9.6% rise expected by analysts. This unexpected moderation in import growth resulted in Japan’s trade balance flipping to a surplus of ¥224 billion ($1.4 billion) from a deficit of ¥1.22 trillion in May.
The trade surplus is expected to have contributed positively to Japan’s economic growth in the last quarter. Nevertheless, economists remain cautious, citing disparities between domestic and external demand strengths. The Bank of Japan, scheduled to announce adjustments to bond purchases by the end of the month, is closely monitoring these economic indicators. Approximately one-third of polled economists anticipate a potential interest rate hike by the BOJ.
Yutaro Suzuki, an economist at Daiwa Securities, remarked, “I anticipate a rebound in GDP growth in the second quarter from the subdued levels of the first quarter, although it may not be robust. Weak import figures reflect fragile domestic demand and consumer spending recovery remains uncertain, posing challenges for the BOJ’s policy decisions.”
The weaker yen, averaging 156.64 against the dollar in June, down 12.5% from a year earlier, bolstered the value of Japan’s export shipments. However, regional breakdowns show a slowdown in export growth rates to major markets. Shipments to the US increased by 11%, a sharp deceleration from previous months, while exports to China expanded by 7.2% compared to 17.8% previously. Exports to the EU declined by 13.4%.
The yen’s depreciation has benefited Japanese exporters by boosting overseas earnings. However, concerns persist about its broader economic impacts, particularly regarding inflation in energy, food, and raw materials in Japan, a resource-scarce nation.
With consumer spending still fragile amid persistent inflationary pressures, Japan’s economic recovery hinges significantly on robust export performance in the second quarter. The economy contracted in the first quarter as both consumers and businesses tightened their spending.
Policymakers are closely monitoring the yen’s effects on economic conditions and prices ahead of the BOJ’s upcoming policy decision. Authorities have intervened in the foreign exchange market multiple times this year to stabilize the yen, with recent actions seen as reinforcing these efforts.
On Thursday morning, the yen was trading at around 155.60 per dollar, approximately three yen stronger than the previous day’s rate.
