Japanese automakers’ sales decline in S.Korea amid consumer boycott

Japanese automakers posted sharper sales falls in South Korea in August, industry data showed on Wednesday, hit by a consumer boycott of Japanese vehicles amid a worsening diplomatic row between the countries.

Toyota Motor and other Japanese carmakers saw South Korean sales tumble 57% to 1,398 vehicles in August from a year earlier, steeper than the 17% fall in July.

Japan’s decision in July to tighten controls on exports of materials that South Korea uses to make semiconductors and display screens has prompted a consumer backlash in Korea, with consumers boycotting Japanese products such as clothes, vehicles and tours to the neighboring country.

Relations between the two US allies had already soured over South Korean demands for Japanese compensation for South Korean forced laborers during World War Two.

Toyota’s South Korean sales fell 59% to 542 in August from a year earlier, while Honda Motor’s sales tumbled 81% to 138.

Toyota’s Lexus was the top-selling Japanese brand in South Korea, with sales reaching 603 vehicles in August, up 7.7% from year earlier, but down 39% from July.

Meanwhile, activity in Japan’s services sector expanded at the fastest pace in nearly two years in August, a revised survey showed on Wednesday, a sign of domestic resilience despite mounting overseas pressures.

The final Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to 53.3 from 51.8 in July on a seasonally adjusted basis, marking the fastest growth since October 2017. The final gauge was slightly lower than the 53.4 reading released in the flash PMI on Aug. 22.

“Japan’s service sector shifted up a gear in August,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“This can be taken as a positive signal ahead of the consumption tax hike staged for October, suggesting that the resilience the domestic market has exhibited in 2019 so far has been sustained into the third quarter.”

Japan’s government is preparing to raise the sales tax to 10% in October, the first such move since it raised the levy to 8% from 5% in April 2014.

Policymakers are hoping robust household consumption and business investment will hold up and be strong enough to offset a deepening export slump amid rising global trade protectionism and the US-China tariff war.

Some policymakers, including Japanese Economy Minister Toshimitsu Motegi, have come out in recent days to say they see no sign of consumers front-loading their spending ahead of the planned sales tax hike.

Some individual components in the survey, however, were less encouraging and indicated momentum in the services sector may be slipping.

New business for Japanese service providers expanded, albeit at its slowest pace in over a year, while employment growth edged down to its slowest since February last year.

“There were signs to suggest caution, particularly in the forward-looking indicators,” IHS Markit’s Hayes said.

The composite PMI, which includes both manufacturing and services, soared to 51.9 from 50.6 in the previous month on the back of the stellar activity in the services sector.

But manufacturing survey data showed on Monday external pressure remains, with factory activity declining for a fourth month in August amid flagging demand.

The contraction marked the longest run of decline since a six-month stretch from March to August 2016.

Japan’s Nikkei share average struggled for traction on Wednesday and the broader Topix dipped after weak US economic data stoked fears of a global recession and soured investor sentiment.

The benchmark Nikkei average ended up 0.12% at 20,649.14 points, while the broader Topix dropped 0.26% to 1,506.81.

US manufacturing activity contracted for the first time in three years in August, with new orders and hiring declining sharply as trade tensions weighed on business confidence, data showed on Tuesday. Cyclical sectors came under pressure, with metal products , iron and steel among worst performing sectors on the Topix.

“The weak US ISM data underscored the view that a recession is highly probable. Global investors are preparing for it in a sombre manner,” said Yasuo Sakuma, chief investment officer at Libra Investments.

Nikkei heavyweight Fast Retailing gained 0.9% after the clothing chain operator said same-store sales at its Uniqlo outlets in Japan rose 9.9% in August from a year earlier.

Nintendo rose 2.6% on hopes of product updates or announcements after the gaming company said it will broadcast a pre-recorded “Nintendo Direct” global presentation on Thursday.

Reuters