Japan’s exports decline for ninth straight month on weak demand

Japan’s exports slipped for a ninth straight month in August as international trade tensions ramped up risks for the world’s third-largest economy, although the decline was slightly smaller than expected.

The negative reading adds some pressure on the Bank of Japan (BOJ) to expand stimulus at its policy meeting on Thursday to prop up business sentiment and manufacturing activity, which have been hit by global economic weakness.

Exports in August slumped 8.2% from a year earlier, Ministry of Finance data showed on Wednesday, dragged down by autos, car parts and semiconductor production equipment.

The fall was smaller than a 10.9% drop expected by economists but marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016.

Fears of a global slump have persisted in recent weeks as uncertainty over the direction of US trade policy cloud the outlook for growth in the United States and export-reliant economies such as Germany, Japan and China.

The nine-month slump in Japan’s exports follows revised data that showed the economy grew at a slower-than-expected pace in April-June as business spending was downgraded from initial estimates.

The latest data comes a day before BOJ policymakers on Thursday decide whether to expand an already massive stimulus programme to shield the economy from a possible downturn and protect its growth drivers.

Increasing signs of slowing global demand have made Japanese central bankers less confident about an early pickup in global growth and more open to debating policy easing.

By region, exports to China, Japan’s biggest trading partner, shrank 12.1% year-on-year in August, down for the sixth month and driven by declines in shipments of semiconductor manufacturing equipments and car parts.

Shipments to Asia, which account for more than half of Japan’s overall exports, dropped 10.9% in the year to August.

Japan’s exports to the United States slipped 4.4% in the year to August, their first fall since September last year and driven by declines in exports of 3000cc cars and car parts.

However, imports from the United States dipped 9.2%, causing Japan’s trade surplus with the world’s biggest economy to rise 3.8% from a year earlier to 472.0 billion yen, the data showed.

Meanwhile, Japan’s Nikkei share average slipped on Wednesday as investors took profits after a 10-day rally ahead of key central bank meetings in the United States and Japan, but continued to hover not far from its four-month high touched a day earlier.

The benchmark Nikkei average retreated 0.2% and closed at 21,960.71, near its four-month peak of 22,041.08 Tuesday, while the broader Topix dropped 0.5% to 1,606.62.

Investors broadly remained on the sidelines ahead of key policy decisions by the US Federal Reserve due later Wednesday and the Bank of Japan on Thursday. But some trimmed positions ahead of the Fed’s policy meeting, analysts said. A 25 basis point cut by the Fed is seen as near-certain, with investors focusing on the so-called “dot plot,” which shows where policymakers expect rates to be in the future.

A Reuters poll pointed toward the Bank of Japan keeping its policy on hold. However, 28 of 41 economists expect it will ease this year and 13 believe it may surprise by taking action at the Thursday meeting.

Oil and gas-related companies, which led gains the previous day, dropped back as crude prices cooled on Wednesday after Saudi Arabia said the kingdom would fully restore its oil supply by the end of month following attacks on its oil facilities.

Japan’s biggest oil and gas developer, Inpex Corporation, shed 4.2% and global engineering company JGC Corp fell 2.3%, while the oil and coal products sector dropped 3.6%. On the flip side, electric and gas companies and sea transport — major beneficiaries of lower oil prices — were the top two performing sectors among the Tokyo bourse’s 33 subsector indexes, rising 0.8% and 0.7%, respectively.

Elsewhere, Sony Corporation declined 2.2% after the electronics company rejected a call by Daniel Loeb’s activist hedge fund Third Point to spin-off its chips business, saying that the business is “a crucial growth driver.”

Japanese government bond (JGB) yields dropped on Wednesday after a 20-year debt auction attracted demand, while investors awaited cues on monetary policy from the US Federal Reserve and the Bank of Japan.

Benchmark 10-year JGB futures rose 0.24 point to 154.19, with a trading volume of 23,938 lots by late afternoon trade.

The 10-year cash JGB yield dropped 1.5 basis points to minus 0.170%, after touching a seven-week high of minus 0.150% earlier in the day.

In the super-long zone, the 20-year and the 30-year yields fell half-a-basis point each to 0.205% and 0.345%, respectively, while the 40-year yield fell 1 basis point to 0.370%.

The US Fed is expected to cut rates by 25 basis points when it concludes its two-day meeting later on Wednesday, with investors focusing on the so-called “dot plot,” which shows where policymakers expect rates to be in the future.

The BOJ meets on Thursday, and the latest Reuters poll suggests the central bank will keep its policy on hold.

However, at least 28 of 41 economists expect it will ease its policy this year and 13 believe it may surprise by taking action at the Thursday meeting.

Reuters