Tepid exports cloud Japan outlook, more BOJ stimulus seen after sales tax rise

Mar 19 2014, 13:25 IST
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SummaryJapan's annual export growth in February was short of market expectations and a Bank of Japan policymaker warned about the outlook as the world's third-largest economy faces a sales tax hike next month that could dent economic activity.

Japan's annual export growth in February was short of market expectations and a Bank of Japan policymaker warned about the outlook as the world's third-largest economy faces a sales tax hike next month that could dent economic activity.

The weaker-than-expected trade data comes after a Reuters poll showed that business confidence was largely steady in March, but is expected to slide after the sales tax is raised to 8 percent from 5 percent on April 1.

Tepid export growth has been a concern for policymakers, who are counting on stronger shipments to help cushion any slide in domestic consumption after the sales tax rise.

Some market watchers, however, including a central bank board member, doubt there will be an early recovery in exports.

BOJ board member Takahide Kiuchi warned that exports could continue to disappoint and that consumer spending could weaken, but said he did not think additional policy easing would help the economy in the long-term.

Exports rose 9.8 percent in February from a year earlier, following a 9.5 percent gain in the previous month, as shipments of cars to China and Asia recovered from a Lunar New Year slowdown, Ministry of Finance (MOF) data showed.

The modest rise compared with a 12.4 percent gain expected by economists in a Reuters poll, with U.S.-bound shipments slowing sharply, due in part to a cold wave there. In terms of volume, exports increased 5.4 percent in February.

"Overall, exports remain sluggish and the situation is severe," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"Considering that one cannot expect 4-5 percent growth in the United States and Chinese growth remains tepid, both of which will weigh on Asian economies and Japan's exports. You cannot rely on such a rosy scenario that exports could offset the impact of a sales tax hike."

Lack of export growth could compel the central bank to announce further monetary stimulus, while the government may resort to more fiscal stimulus to prop up the economy as soon as the summer, Minami said.

The central bank will ease policy again by July as prospects for higher inflation remain remote and the outlook for the

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