Japan’s exports fell at the fastest pace in four months in May on supply chain disruptions from the Kumamoto earthquake and slow growth in emerging markets – foreshadowing gloomy trade prospects for the current quarter.
Japan’s exports declined 11.3 percent year-on-year in May, Ministry of Finance data showed on Monday, versus the median estimate for a 10.4 percent annual fall and a 10.1 percent annual drop in April. Exports are likely to expand in coming months as overseas demand shows signs of stabilising, but Prime Minister Shinzo Abe remains under pressure to support growth as further gains in the yen threaten exports and corporate earnings.
“Exports in April-June have stagnated, reflecting disruptions to Japan’s supply chain and soft demand overseas,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.
“There is strong reason to believe exports will pick up from July-September. We are not in a recession, but more gains in the yen would become a problem.”
Exports fell in May on declines in shipments of steel, semiconductors and electronic parts, the data showed. A series of earthquakes struck the southern manufacturing hub of Kumamoto in mid-April destroying homes, triggering landslides and stopping production of electronics and car parts at factories in the area.
Many companies were able to resume production quickly, but it has taken a while for some plants to return to full capacity. Exports to China – Japan’s largest trading partner – fell 14.9 percent in May, while the U.S.-bound shipments fell 10.7 percent year-on-year.
Exports to Asia, which accounts for more than half of Japan’s shipments, fell 13.0 percent in the year to April, and EU-bound shipments fell 4.0 percent.
The yen has risen around 15 percent versus the dollar this year due to receding expectations for U.S. interest rate hikes, which is weighing on exports. If the yen continues to rise, this could lower exporters’ earnings, which could in turn discourage companies from raising wages and capital expenditure.
A strong yen also complicates the Bank of Japan’s attempts to encourage inflation because it reduces the cost of imported goods.