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 The data backs expectations for additional stimulus from the Bank of
Japan in coming months, particularly if market confidence takes a
hit as external demand proves elusive.
"If exports fail to pick up while domestic demand stagnates, that
would heighten calls for the BOJ to act," said Takeshi Minami, chief
economist at Norinchukin Research Institute.
Total exports fell 2.7 percent May on the year, Ministry of Finance
data showed on Wednesday, compared with a 1.2 percent drop seen by
economists and a 5.1 percent rise in April. On a seasonally adjusted
basis, exports fell 1.2 percent in May from the prior month.
The central bank is counting on exports growth to partially offset
the impact of a sales tax hike to 8 percent from 5 percent in April,
but the MOF data will be a worry for policy makers.
Adding to the BOJ's concerns over soft exports to Asia is the
surprising weakness in shipments to the United States - Japan's
biggest export market - which suggests a recovery in advanced
economies is slow to filter through to exporting firms.
This was underscored in Singapore's exports for May, which
unexpectedly fell on weak shipments to its key markets. The
city-state's non-oil domestic exports to the United States fell 8.8
percent in May from a year earlier, compared with 11.7 percent
growth in April.
In South Korea, exports to the U.S. rose 5.5 percent on-year, but
that was much slower than April's 19.3 percent jump.
The MOF data showed Japan's U.S.-bound exports fell 2.8 percent, the
first drop in 17 months led by decline in car shipments, while
exports to China rose 0.4 percent on-year.
Exports to Asia, which account for more than half of Japan's total
exports, fell 3.4 percent in May from a year earlier, the first
annual decline in 15 months.
MISPLACED CONFIDENCE?
BOJ Governor Haruhiko Kuroda last week said the timing of export
recovery may have been delayed, but the bank has maintained that the
economy is on track to meet its 2 percent inflation goal next year,
shrugging off the need for additional stimulus. [ID:nL4N0OU0JD]
Minutes of the May 20-21 BOJ meeting released on Wednesday
reinforced policymakers' confidence about the economic outlook.
The central bank chief sees shipments eventually picking up as
overseas markets, mainly advanced economies, recover.
However, the latest data suggests external demand may not fire up
nearly enough to help Japan's economy cope with short term dips in
growth.
Norinchukin Research's Minami believes that although market
expectations for fresh BOJ easing steps have largely been pushed
back to later this year, Kuroda may act by autumn to arrest a loss
of momentum.
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The world's third-biggest economy picked up speed in the first
quarter as consumers loaded up on goods ahead of the tax hike, but
growth is expected to slump in the current quarter as the effects of
the one-off consumption spike winds back.
"In today’s world of very low US$-value export growth Abenomics
could only count on export-led growth by taking market share,"
Capital Economics said in a note to clients.
"It remains to be seen whether Abenomics can stimulate domestic
spending sufficiently to offset weak export demand."
DOMESTIC CONSUMPTION, EXPORT VOLUMES WEAK
Indeed, the negative impact of the sales tax hike on consumption was
highlighted in Japan's imports for May, which fell 3.6 percent on
the year, versus a 1.7 percent increase expected.
The weaker imports helped the country's trade deficit narrow from a
year earlier to 909.0 billion yen, but still marked a record run of
23 months in the red.
Japan's exports had grown at a double-digit pace in the second half
of last year, but growth has slowed to below 10 percent this year as
the effects of a weak yen fade.
More worryingly, the yen's fall has failed to shore up export
volumes, which peaked in 2007 and have been falling for a third
straight year in 2013.
Export volumes fell 3.4 percent in May from a year ago, highlighting
the plight of exporters as a weak yen has boosted import costs more
than export income.
BOJ's aggressive monetary stimulus helped weaken the yen by some 20
percent last year, boosting exporters' profits and share prices.
However, the yen has moved sideways this year versus the dollar,
limiting gains in the value of exports.
($1 = 102.0500 Japanese Yen)
(Reporting by Tetsushi Kajimoto; Editing by Shri Navaratnam)
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