Bloomberg News

Japan Exports Drop Less Than Estimated as Auto Decline Slows

July 20, 2011

(Updates with economist’s comment in the fourth paragraph.)

July 21 (Bloomberg) -- Japan’s exports fell less than economists expected as the decline in auto shipments slowed, underscoring the recovery of the world’s third-largest economy from the March 11 earthquake and tsunami.

Exports decreased 1.6 percent in June from a year earlier, the slowest fall in four months, the Finance Ministry said today. Shipments increased 5.4 percent in June from May on a seasonally adjusted basis, the fastest gain since February.

Shipments are recovering as manufacturers such as Toyota Motor Corp. restore production damaged by a record temblor. Still, export growth may be threatened by the yen’s gain to a four-month high against the dollar, a U.S. economic deceleration and fallout from the European sovereign debt crisis.

“The report showed a recovery in the manufacturing industry, which means supply constraints are definitely easing,” said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo. “The strengthening yen may not have an immediate effect on the export recovery, but in the longer term it may jeopardize Japanese companies’ competitiveness.”

The yen traded at 78.75 against the dollar at 11:29 a.m. in Tokyo, compared with 78.86 before the report. It has gained almost 4 percent in the past three months, and rose to a four- month high of 78.47 on July 14.

Trade Surplus

The median estimate of 27 economists surveyed by Bloomberg News was for a 4.1 percent decline in overseas shipments. The slower-than-expected decrease in exports helped Japan unexpectedly post a trade surplus last month, of 70.7 billion yen ($898 million), the first in three months.

Economic data so far have underscored the corporate sector’s rebound from the March disaster. Industrial production rose at the fastest pace in more than 50 years in May, led by carmakers. Large companies plan to boost capital spending 4.2 percent in the fiscal year ending March 2012, more than economists forecast, the Bank of Japan’s Tankan survey showed.

Toyota Motor, the world’s biggest carmaker, may return to unrestricted production of all models in October, two weeks earlier than previously planned, Executive Vice President Atsushi Niimi said on July 4.

Automobile Exports

Automobile exports decreased 12.5 percent from a year earlier, the slowest decline since February, according to today’s report.

Komatsu Ltd., the world’s second-largest construction machinery maker, said Japanese orders increased more than 30 percent in the second quarter from a year earlier, spurred by reconstruction demand, Chief Executive Officer Kunio Noji said last month.

The risk for Japan’s export-led recovery is a cloudy overseas outlook. The U.S. unemployment rate rose to 9.2 percent in June, the highest this year, as hiring slowed and earnings stagnated, while manufacturing growth slowed in China, Japan’s biggest export market. Investor concern over debt levels in Italy and Spain sent bond yields in those nations to euro-era records this week.

Economic Recovery

“There’s a high chance that an economic recovery will be weaker than expected, given the high U.S. jobless rate, the European fiscal problems, and the yen’s gain,” Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo, said before the report.

Japan’s central bank will take “decisive” policy action when needed while watching the economy and exchange rates, Deputy Governor Hirohide Yamaguchi said yesterday. The yen’s advance could become “problematic” if it becomes a trend, Finance Minister Yoshihiko Noda said last week.

Exports to China, Japan’s largest overseas market, rose 1.2 percent in June from a year earlier, the first advance in three months, the report showed. Exports to Europe increased 8 percent, gaining for the first time since March.

Shipments to the U.S. fell 6.1 percent, the slowest pace of decline since March. Imports rose 9.8 percent in June from a year earlier.

Prime Minister Naoto Kan has pledged to step down once the disaster is contained. Political wrangling forced Kan to scale back a second extra budget for rebuilding to 2 trillion yen, only half the size of the first one. The magnitude-9 quake and tsunami in March left more than 20,000 people dead or missing.

Japan’s economy may grow at a 4.3 percent annual pace this quarter after contracting at 3 percent in the three months through June, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released on July 11. The economy shrank 3.5 percent in the first quarter.

--With assistance from Theresa Barraclough and Minh Bui in Tokyo. Editors: Ken McCallum, Lily Nonomiya

%JPY

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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