Overview

Japan experienced its first monthly decline in exports in more than 2 years due to weaker demand from its major trading partners, particularly China and other Asian countries. This decline in exports has raised concerns about the growth prospects of the world’s third-largest economy.

Export and Import Figures

In July, exports fell by 0.3% compared to the same period last year, marking the first decline since February 2021. Exports to Asia plummeted by almost 37%, while exports to China experienced an eighth consecutive monthly decline, contracting by 13.4%. This highlights the significant slowdown in China’s economy.

On the other hand, Japan’s domestic demand showed no significant improvement, as imports slumped by 13.5% in July. Although both export and import numbers were slightly better than expected, Japan recorded a trade deficit of 78.7 billion yen (539.6 million dollars), falling far short of the estimated surplus of 24.6 billion yen.

Economic Uncertainties

Despite the offsetting increase in exports to the United States and Europe, Sayuri Shirai, an economics professor at Keio University, warns of uncertainties surrounding the US and European economies. The current weakness in China’s exports is a cause for concern, as Japan heavily relies on China and Asia for a significant portion of its trade.

Bank of Japan’s Monetary Policy

The Bank of Japan is unlikely to deviate from its ultra-easy monetary policy, aimed at revitalizing the economy, due to faltering domestic demand and the uncertain global economic outlook. The continued weakness of the Japanese yen is another worrisome factor, as the currency reached 146 yen to the dollar.

Impact on Japan’s Economic Outlook

Japan’s exports to China account for 20% of its total, while exports to Asia constitute 50%. Therefore, any developments in China’s economy have a significant impact on Japan’s overall economic performance. Chinese Premier Li Qiang’s recent commitment to achieving economic targets for the year comes after economic data fell short of expectations, raising concerns about China’s ability to achieve its 5% growth target.

BOJ Intervention and Machinery Orders

Experts believe that the Bank of Japan (BOJ) may intervene in the foreign exchange market soon, as the Japanese yen approaches the 150 mark against the dollar. This level prompted a previous intervention by Japan’s Finance Ministry, injecting approximately $68 billion to support the yen last year. Additionally, separate data revealed a 5.8% decline in core machinery orders in July, which is considered a leading indicator of capital expenditure despite its volatility.