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 Exports fell 2.0 percent in June from a year earlier, compared with
a 1.0 percent increase expected by economists in a Reuters poll,
data from the Ministry of Finance showed on Thursday.
That followed a 2.7 percent decline in the prior month, which was
the first annual drop in 15 months.
Sluggish exports, a weak spot in the world's third-largest economy,
have been a concern for policymakers who hoped that a recovery in
external demand would help offset the pain from a sales tax hike in
April.
Analysts say weak exports alone may not prompt the Bank of Japan to
expand its massive quantitative and qualitative monetary easing
policy, but if domestic demand fails to convincingly recover, it
could raise expectations for additional monetary expansion.
Those expectations had subsided in recent weeks in the face of the
BOJ's dogged confidence that it will meet its goal to push inflation
to 2 percent by next year. The target is a core element in the
government's "Abenomics" strategy to pull the long-moribund economy
from two decades of deflation.
"This raises more concern about how the economy will do after the
sales tax hike and makes the government less likely to proceed with
the next tax hike scheduled for next year," said Yasuo Yamamoto,
senior economist at Mizuho Research Institute.
"Weak exports alone will not prompt the Bank of Japan to ease
policy, but if consumer spending also weakened, then expectations
for a policy change would increase."
Exports to the United States, a key market, fell 2.2 percent in June
from a year ago as more Japanese companies produce goods in other
countries, such as Mexico, for U.S. consumers. Car shipments to the
United States fell 6.8 percent.
Exports to China, another key market for Japan, rose 1.5 percent,
but exports to Asia, which accounts for more than half of Japan's
total exports, fell 3.8 percent, hit by sluggish shipments of
electronics parts.
Some respite for policymakers, though, came in the form of July's
Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI)
which saw the new export orders return to growth for the first time
in four months.
INFLATION TARGET IN DOUBT?
Despite the BOJ's rosy outlook on prices, economists doubt its
inflation target will be met next year. Economists expect inflation
to stay at 1.1 percent this fiscal year and next, according to a
Reuters poll released earlier on Thursday.
Tepid exports would weigh on the economy and keep a lid on
inflation, posing challenges for policymakers. The BOJ and the
government, as well as private-sector analysts, trimmed their
economic growth estimates for the current fiscal year, but they have
kept their inflation projections intact.
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Analysts expect Japan's consumer inflation to slow to around 1
percent in the coming months as the impact of a weak yen on import
costs runs its course, although prices are likely to pick up later
this year if a tight labour market pushes up wages.
Data due on Friday is likely to show the nationwide core consumer
price index, which includes oil products but excludes volatile fresh
foods, rose 1.3 percent year-on-year in June, when stripping out the
effect of the sales tax hike.
TRADE DEFICIT
Japan's imports grew 8.4 percent in the year to June, matching the
median estimate, due to hefty fuel imports, bringing the trade
balance to a deficit of 822.2 billion yen ($8.10 billion), the MOF
data showed, marking two full years of trade shortfalls, the longest
run on record.
On a half-year basis, Japan logged a record trade deficit of 7.5984
trillion yen in the first half of 2014, the data showed.
BOJ Governor Haruhiko Kuroda said last week exports would increase
eventually as overseas markets, mainly in advanced economies,
recover, while Finance Minister Taro Aso has also blamed weakness in
emerging market economies for Japan's lacklustre export
performance.Policymakers and analysts also cite the ongoing shift of
Japanese factories abroad as being partially responsible for
prolonged weakness in exports.
Aggressive monetary stimulus by the BOJ helped weaken the yen by
roughly 20 percent in 2013, boosting exporters' profits and share
prices. However, the yen has moved sideways this year versus the
dollar, limiting gains in export proceeds and sales.
(Editing by Eric Meijer)
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