TOKYO — Japanese exports grew at their slowest pace this year in August as the impact of a strong yen and softening overseas demand illustrated the risks threatening a fragile recovery.
Strong Asian demand for cars, high-tech products and factory parts have in recent months helped offset a weak domestic picture and enabled Japan's biggest companies to return to profit and bring about a tentative economic recovery.
But analysts expect exports to decelerate further in the months ahead on slowing demand, the rise of the yen and also on the potential impact of frayed relations with key trade partner China over a territorial dispute.
While demand for steel and automobile-related products saw Japan's exports jump 15.8 percent to 5.22 trillion yen year-on-year in August, this was below July's 23.5 percent rise and the slowest pace since December 2009.
The August export figure also missed forecasts of a 17.9 percent rise.
"The idea of a V-shaped recovery based solely on the export sector is no longer a credible scenario," said Japan Research Institute chief economist Hidehiko Fujii.
"The outlook for the Japanese economy is severe," he told Dow Jones Newswires.
Japan's trade surplus shrank for the first time in 15 months in August from year-earlier levels, down 37.5 percent to 103.2 billion yen (1.22 billion dollars), according to the finance ministry.
Increased imports of crude oil, liquefied natural gas as well as iron ore lowered the overall surplus despite the rise in exports.
Analysts warn that risks to demand remain as world leaders embrace tighter fiscal policies to help rebalance a global economy knocked off its axis by the financial crisis.
"The drop in the trade surplus is a sign that the world economy itself is slowing down," said Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities.
"Exporters expect overseas demand to weaken sooner or later while they are also threatened by the rapid rise of the yen," he said.
A strong yen not only makes exports more expensive but also erodes companies' overseas profits when repatriated.
Japan stepped into the currency markets in September for the first time since 2004 in a bid to stem the yen's strength after it hit a 15-year high against the dollar, and has repeatedly warned it is ready to do so again.
Meanwhile Japan's trade deficit with China shrank 47.3 percent to 69.6 billion yen in August compared with a year ago.
Exports to China, a major driver of the Japanese economy, rose 18.5 percent to 1.05 trillion yen, while imports from China increased 20.0 percent to 1.12 trillion yen.
But Shimanaka said he expected Japan's trade surplus to slump further in the October-December quarter on the impact of September's political tensions with China.
An assertive Beijing still demands an apology and compensation for the detention of a Chinese fisherman after his boat collided with two Japanese Coast Guard vessels, reigniting a territorial dispute in the East China Sea.
Japan-based traders say China has blocked exports of rare earth minerals, essential for Japanese industries manufacturing components used in a variety of sophisticated electronic products including mobile phones and electric cars.
Beijing has also toughened customs clearance procedures, delaying shipment to and from Japan, in what appears to be retaliation over the diplomatic dispute, the The Daily Yomiuri reported Monday.
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