Fall in Japanese exports boosts push for weaker yen

Offshore concerns on potential for currency war rise as annual trade deficit grows to a record

PUBLISHED : Thursday, 24 January, 2013, 4:23pm
UPDATED : Friday, 25 January, 2013, 3:51am

Japan's exports fell more than analysts forecast, and the annual trade deficit swelled to a record, bolstering the case for Prime Minister Shinzo Abe to weaken the yen even as trade tensions mount.

Shipments dropped 5.8 per cent last month from a year earlier, compared with a median estimate of 4.2 per cent in a survey of 23 economists. The annual deficit was 6.93 trillion yen (HK$608 billion), the finance ministry said yesterday.

Japan is mounting a defence of its currency policies before a Group of 20 meeting next month, as officials from Germany to South Korea express concern at efforts to weaken the yen.

In Tokyo on Wednesday, currency chief Takehiko Nakao said the Bank of Japan was not undertaking a "competitive" devaluation and that its aim was to end deflation.

"Foreign officials are becoming increasingly vocal over the possibility that Japan's policy actions have the potential to prompt a currency war," said Izumi Devalier, a Japan economist at HSBC. "I think the government will avoid taking the rhetoric too far."

A yen that has weakened about 7 per cent against the US dollar in the past two months makes products relatively cheap in export markets and boosts overseas income for Japanese companies such as Canon when repatriated. It also pushes up the cost of imports such as liquefied natural gas (LNG).

With imports rising 1.9 per cent and exports falling for seven months, Japan's trade shortfall last month was 641.5 billion yen, the sixth month in deficit. Imports of LNG rose 8.3 per cent from a year earlier.

Japan's export slide comes as Europe's crisis drags on shipments and a diplomatic dispute with China over islands claimed by both countries hurts demand for products such as Toyota Motor's cars.

Exports to China fell 15.8 per cent from a year earlier, while those to the US dropped 0.8 per cent. Shipments to the European Union were 11.1 per cent lower.

"These are bad numbers for the economy," said Junko Nishioka, chief economist at RBS Securities Japan.

Goldman Sachs and Societe Generale are predicting Japan's currency will resume declines as Abe presses for more easing. On Wednesday, Goldman said it saw the yen at 100 per US dollar by the end of 2015.

"Abe will try to push the yen down as far as he can, at least to 100-105 per dollar," Lee Sang-jae, a senior economist at Hyundai Securities in Seoul, said yesterday. "[The] export figures will reinforce his case."