Strong exports lift hopes for Japan's economy

Trade deficit is expected to shrink as a weak yen helps boost shipments by 10 per cent in May

PUBLISHED : Wednesday, 19 June, 2013, 10:17am
UPDATED : Thursday, 20 June, 2013, 2:08am

Japan's exports rose last month at the fastest annual rate in more than two years, boding well for the economy as a weak yen and a moderate pick-up in global demand add to the country's stimulus policies.

The gain in exports will offer solace to Prime Minister Shinzo Abe following a recent sell-off in stocks, volatility in bonds and a surge in the yen, which raised worries about the outlook for his policy mix to beat nearly two decades of deflation.

Despite the yen's recent gains, it is still much weaker than it was last year, which is likely to continue to benefit Japan's exports and help narrow the trade deficit.

"We can certainly say that exports are headed in the right direction," said Shuji Tonouchi, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. "The breakdown shows that export volumes are still a little weak. Demand from the United States is doing well. Japan's trade deficit should eventually shrink."

Exports rose 10.1 per cent in the year to May, compared with a 6.5 per cent increase projected by analysts, growing for a third month, data from the finance ministry showed yesterday. It was the quickest pace of gain since December 2010.

Among Japan's key trading destinations, exports to the United States rose 16.3 per cent from a year earlier, the fastest pace since May 2012. Shipments to China increased 8.3 per cent, the quickest pace since February 2011.

Imports jumped 10 per cent in May from a year ago, up for a seventh month boosted by rises in liquefied natural gas purchases. That compared with a 10.8 per cent annual gain projected by analysts.

The trade balance came to a deficit of 993.9 billion yen (HK$81.1 billion), compared with economists' forecast for a 1.2 trillion yen deficit. It marked the 11th consecutive month that Japan's trade balance has been in deficit as energy import costs remained high, offsetting a moderate recovery in exports.

Japanese financial markets have seen extreme volatility over the past few weeks on worries about reduced stimulus from the US Federal Reserve, which caused the yen to rebound from a 41/2-year low against the US dollar.

An underwhelming package of structural reforms unveiled by the Japanese government recently and concerns about slowing growth in China have also contributed to the tumult in markets.

Analysts say the yen is still weak enough to boost exports, which should eventually narrow the country's trade deficit.

The world third-largest economy grew at an annualised 4.1 per cent in the first quarter, better than the initial estimate, underlining a steady recovery in global demand and the government's sweeping stimulus policies.