Japan’s exports hit a record high in July, powered by strong shipments to the US and China and helping offset weak domestic demand
Japan’s exports rose at their fastest pace in months in July, hitting a record high as strong shipments to the United States and China helped support an economy facing weak domestic demand.
Exports increased 23.2 per cent from a year earlier to 11.5 trillion yen ($72.62 billion) in July, government data showed on Thursday. The rise was stronger than the median market forecast of a 19.9 per cent increase and followed a 19.3 per cent rise in June.
The record export value highlights the growing importance of overseas demand for Japan’s economy, particularly as consumer spending and business investment remain relatively weak.
US and China drive export growth
Shipments to the United States, one of Japan’s biggest trading partners, rose 22 per cent year-on-year in July.
Exports to China increased even faster, rising 25.8 per cent from a year earlier.
The strength of shipments to both markets points to resilient demand for Japanese goods despite concerns over global trade and the broader outlook for the world economy.
Japan is heavily dependent on overseas markets for its manufacturing sector. Automobiles, machinery and other industrial products account for a large share of its exports.
More from BusinessThe latest figures suggest that Japanese manufacturers are continuing to find demand abroad even as the domestic economy struggles to generate stronger growth.
Japan’s economy expanded for a third consecutive quarter in the April-June period, with exports helping offset weak private consumption and business investment.
Imports also rise
Japan’s imports increased 27.8 per cent year-on-year in July, beating the 26.5 per cent increase expected by economists.
The faster rise in imports meant Japan still recorded a trade deficit of 634.5 billion yen in July. However, the deficit was narrower than the 680 billion yen shortfall forecast by economists.
Higher import values have partly reflected Japan’s dependence on overseas energy and commodities.
The country imports most of the energy it consumes, leaving its trade balance vulnerable to movements in crude oil and other commodity prices.
The disruption to shipping through the Strait of Hormuz earlier this year and the resulting rise in energy and commodity prices had pushed up Japan’s import bill. Even after oil prices eased and shipping routes were partially restored, the impact continued to filter through because import prices based on customs data can reflect contracts agreed weeks earlier.
Export value gets a boost from prices
The record export value does not necessarily mean that Japanese companies are shipping substantially more goods in volume terms.
Higher prices have also supported the value of exports. Rising commodity and energy costs have moved through supply chains, allowing Japanese manufacturers to pass some of those higher costs on to overseas customers.
As a result, export values have remained strong even though growth in export volumes has been more subdued.
That distinction is important when assessing the underlying strength of external demand.
What does it mean for the Bank of Japan?
The resilience of exports could strengthen the case for the Bank of Japan to continue moving away from its long-standing ultra-loose monetary policy.
The central bank has been gradually normalising policy after years of near-zero interest rates and deflationary pressures.
Recent data showing continued economic expansion, combined with strong exports, could give policymakers greater confidence that Japan’s economy can withstand higher borrowing costs.
Markets are watching closely for signals on the timing of the next rate increase, with the Bank of Japan potentially raising rates as soon as September.
However, weak domestic consumption remains a key concern.
For Japan, a sustained recovery will ultimately depend on whether stronger exports can be matched by healthier household spending and business investment. Until then, the latest trade figures underline how important overseas demand remains to the country’s economic growth.
(With inputs from agencies.)
