Japan exports surged by 13.5% year-over-year in May, the highest rate since late 2022, according to the Finance Ministry’s report on Wednesday. This marked the sixth consecutive month of growth, surpassing economists’ consensus forecast of a 12.7% rise and reaching levels not seen since November 2022.
Rising Imports and Trade Deficit
While exports flourished, imports climbed 9.5%, aligning with predictions. The trade deficit expanded significantly to ¥1.22 trillion ($7.7 billion), up from ¥466 billion in April. This substantial increase in the trade deficit highlights the complex economic dynamics at play.
Rising imports and a ¥1.22 trillion trade deficit reveal challenging economic complexities despite export growth, Barron’s Print Edition said.
Impact of a Weak Yen
A major factor in the robust export performance was the weaker yen, which averaged 155.48 against the dollar in May, 14.9% weaker than a year earlier. Ryotaro Tsuchiya, an economist at Mizuho Securities Co., noted, “A weaker yen benefits exporters. However, with inflated import costs, it’s challenging to see much overall benefit, as Japan has to pay more for foreign goods, raising costs for companies.”
Mixed Benefits and Concerns for Importers
The devalued yen has indeed created favorable conditions for exporters, resulting in a 23% increase in first-quarter profits for manufacturers. Nonetheless, there is growing apprehension among importers about a resurgence in cost-push inflation. Over 60% of surveyed Japanese firms indicated that the weak yen would negatively impact their profits, as reported by Teikoku Databank in May.
International Market Dynamics
The growth in exports occurred amidst mixed signals from major international markets. On Tuesday, data revealed that US retail sales barely grew in May, with previous months’ figures revised downward. However, US industrial production surged, driven by consumer goods output. Meanwhile, China’s retail sales growth exceeded expectations in May despite a worsening property slump, and household consumption in the euro area is anticipated to increase slightly this year.
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Regional Export Performance
Regionally, Japan experienced a significant surge in exports to the US, which increased by 23.9%. At the same time, exports to China saw a notable growth of 17.8%. However, the country faced a decline in shipments to the EU, which dropped by 10.1%.
Sector-Specific Highlights
Car exports increased by 13.6% as automakers like Daihatsu Motor Co. resumed production. This followed a temporary halt due to a safety certification scandal. However, future momentum remains uncertain as the scandal has since expanded. Japan suspended delivery and sales of six vehicles, including three from Toyota, after uncovering falsified safety data.
Other products showing growth included semiconductor manufacturing equipment and electronic components.
Concerns Over Cost-Push Inflation
The persistent yen weakness is raising alarms about potential cost-push inflation, which could adversely affect private consumption. Consumer sentiment fell by the largest margin in over two years in May, reflecting growing concerns about enduring inflation driven by the weak yen.
Monetary Policy and Future Outlook
Bank of Japan Governor Kazuo Ueda reiterated in parliament on Tuesday the necessity to closely monitor the yen and import prices. This careful scrutiny will be essential as Japan navigates complex economic terrain. The terrain is shaped by its export gains and import cost challenges.
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