Japan exports shrink for first time in more than two years

By Erica Yokoyama

JAPAN’S exports dropped for the first time in more than two years as patchy overseas demand weakened, signaling headwinds for an economic recovery that has relied increasingly on external markets as domestic spending sputters.

The value of exports fell 0.3 percent in July from a year earlier, retreating for the first time since February 2021 as sharp falls in shipments of chip-making gear and parts outweighed a jump in demand for cars, the finance ministry reported Thursday. Economists had forecast a 0.2 percent decline.

Imports fell for a fourth month, sliding 13.5 percent from the previous year, the steepest decline since September 2020 as commodity prices ease. Economists had estimated they would fall by 15.2 percent.

The trade balance slipped back into the red, with a deficit of 78.7 billion yen ($538 million) after a 43 billion yen surplus in the previous month. Economists had expected the surplus to widen to 47.9 billion yen.

The figures come days after data showing the economy grew at a 6 percent annualized pace in the second quarter, with much of that expansion powered by external demand. Combined with signs of sluggish domestic demand—household spending fell for a fourth straight month in June—the data add to the case for Bank of Japan Governor Kazuo Ueda and his board to retain their ultra-easy policy as authorities wait to see if recent gains in wages become a trend.

“Japan’s export engine—which powered a surprisingly strong pickup in growth in the second quarter—entered 3Q23 sputtering, with outbound shipments falling in July. The adjusted trade deficit widened slightly, suggesting net exports could drag on the economy,” said Bloomberg economist Taro Kimura.

Exports data continued to highlight uneven economic conditions overseas. Shipments to the US rose by 13.5 percent from a year ago, a slightly faster pace than in the previous month, and those to Europe increased by 12.4 percent.

Meanwhile, exports to China, Japan’s biggest trading partner, slid by 13.4 percent, the largest drop since January, with shipments of cars and chips and chip components dipping at double-digit clips.

Shipments to China fell for an eighth consecutive month, a trend that may persist as economic activity cools. The world’s second largest economy saw slower-than-expected growth in the second quarter, prompting economists to slash their forecasts for 2023 growth.

Exports to the US were powered by shipments of cars, which rose 34 percent as supply-chain glitches were ironed out. Japan also shipped more cars to Europe.

It’s unclear if that demand will be sustained. Leading economic indicators in the US and Europe have shown signs of slowing, partly due to continued interest rate hikes.

“The automobile industry has been recovering, but this trend will soon run its course,” said Makoto Ishikawa, senior research associate at Itochu Research Institute. Once it runs its course, “Japan’s exports to Europe and US will weaken.”

In its latest Outlook report, the BOJ noted that external demand may flag in the months ahead, saying, “Exports and production are projected to be affected by the slowdown in the pace of recovery in overseas economies.”

By product, exports of mineral fuel fell by 60 percent, the biggest drag, while shipments of chips and chip manufacturing equipment declined by 27 percent.

“Deteriorating semiconductor market conditions pushed down prices, putting downward pressure on overall exports,” said Ishikawa.

The decline in imports comes as commodities prices have declined. Brent averaged about $80 a barrel in July, down from around $105 a barrel in the same period last year. That drop signals that commoditydriven inflation is easing in line with the BOJ’s view.

The yen’s retreat to the weakest since November is offsetting some of that impact by pushing up the costs of imported goods. For Thursday’s trade data, the average exchange rate was 142.32 yen against the dollar, as Japan’s currency weakened by 4.6 percent compared with a year earlier.

The deterioration in the trade balance comes even as inbound tourism helps bring money into the country. The number of foreign visitors to Japan topped 2 million for a second consecutive month in July, recovering to about 78 percent of pre-pandemic levels.

That effect could build in coming months after China last week ended a ban on group tours to Japan. Daiwa Institute of Research estimates that Chinese tour groups will boost inbound spending by about 200 billion yen to roughly 4.1 trillion yen ($28.2 billion) this year.

The weak yen is fueling the strong interest among tourists in visiting Japan. It should also help boost the profits of exporters, but it also puts upward pressure on import bills.

“Continued yen depreciation will increase the amount paid overseas,” said Shuji Tonouchi, senior economist at Mitsubishi UFJ Morgan Stanley. “In the short term it’s a negative, deteriorating factor for the trade balance.” Bloomberg News

PHL and Germany vow deeper ties to fight climate change

By Samuel P. Medenilla @sam_medenilla

PRESIDENT Ferdinand R. Marcos Jr. on Thursday said he considers Germany as a key ally in pushing for his climate-change agenda globally.

D uring the presentation of credentials of new German Ambassador Andreas Michael Pfaffernoschke in Malacañang, the Chief Executive said the country’s newly signed partnership with Germany will help in his promotion of “the climate agenda in both the local and international settings.”

It is axiomatic to me to say that no country can do this alone. The economies, climate change, energy, all of these things have to be done in partnership. So, let’s look in that direction Mr. Ambassador,” Marcos said during the event.

U nder the Philippines-Germany Joint Declaration of Intent on Interdepartmental Consultations for Bilateral Technical Cooperation Projects, both countries will “hold regular interdepartmental consultations about ongoing and pipeline bilateral technical cooperation projects” related to climate, energy and biodiversity.

T he Marcos administration, through the Climate Change Commission, has been calling for the creation of loss and damage mechanism to help in the climate change adaptation measures of developing countries.

T he President stressed the importance of a collective response from the international community to address the effects of climate change.

“ I always describe it as really the first truly global problem that humanity faces because it’s global in the sense that everybody is affected. And it’s also global because we cannot solve it without everybody doing their part,” Marcos said.

A side from climate change the President and Pfaffernoschke discussed the thriving people-topeople connections between the Philippines and Germany.

T hey committed to maintain the Philippine-Germany diplomatic relations, which will mark its 70th anniversary next year, and exploring other areas of cooperation.

“ There are many things that I think we can do. I hope few of them will come to fruition so that we can say that we have done the fullest that we can do in this partnership,” Marcos said.