Japan exports grow unexpectedly on solid car sales, global demand still uneven

TOKYO  -Japan’s exports grew unexpectedly in May on robust car sales, though the rate of expansion slowed to a crawl as inflation and rising interest rates bit into global demand, highlighting a patchy recovery in the world’s third-largest economy.

While the country’s hotels, restaurants and other service sector companies have seen a boom in business since COVID curbs were eased, its factories have been struggling amid weakening demand for cyclical items such as chip-making machines.

Ministry of Finance data showed on Thursday that exports rose 0.6 percent year-on-year in May, for the 27th straight month of rises, led by 66 percent growth in car shipments.

The overall exports growth was the slowest since February 2021, but the outcome beat a 0.8-percent year-on-year decrease expected by 16 economists in a Reuters poll, and followed a 2.6-percent rise in April.

“Semi-conductor equipment and related exports were the main sources of export weakness, which chimes with the sharp drop in exports to countries like Taiwan and South Korea…offset by continued strength in motor vehicle exports,” said Darren Tay, Japan economist at Capital Economics.

This year, domestic demand may temporarily outpace slumping exports as a key driver of growth, said Takeshi Minami, chief economist at Norinchukin Research Institute.

Separate government machinery orders data, also released Thursday, underlined the struggles faced by manufacturers though the overall numbers suggested the services sector is providing some cushion to the economy.

Japan April factory output unexpectedly falls on weaker machinery orders

Core machinery orders rose 5.5 percent in April from the previous month, the first increase in three months and above the median forecast for a 3-percent gain. While orders from manufacturers were down 3 percent, an 11 percent growth in service-sector demand for items such as computers drove up the headline figure.

On a year-on-year basis, core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, fell 5.9 percent, versus a forecast for a decline of 8 percent, the Cabinet Office data showed.

Imports still weak

Japan raises view on imports, sees rising bankruptcies

The data will be among other key indicators to be scrutinized by the Bank of Japan as it holds two-day policy setting meeting that ends on Friday.

Japan’s gross domestic product (GDP) expanded an annualized 2.7 percent in January-March, much higher than a preliminary estimate of a 1.6- percent growth, as revised capital expenditures and firm private consumption more than offset the slowdown in external demand.

The trade data also showed imports fell 9.9 percent in the year to April, down for the second straight month on softening commodity prices, versus the median estimate for a 10.3- percent decrease.

The trade balance came to a deficit of 1.3725 trillion yen ($9.80 billion), versus the median estimate for a 1.3319 trillion yen shortfall.

Japan March export growth slows, annual trade deficit widens to record

By region, Japanese exports to China, the country’s largest trading partner, fell 3.4 percent year-on-year in May for their sixth month of decrease, due to shrinking steel and auto parts shipment, although items such as cars and semiconductors recorded growth.

U.S.-bound exports, another key market for Japanese exports, grew 9.4 percent in the year to May on double-digit gain in car shipment.

“For the outlook of Japanese exports, the U.S. Fed’s rate-hike pause is a positive news that will further vitalize American private consumption”, said Kazuma Kishikawa, economist at Daiwa Institute of Research.

“With recovery in Chinese goods spending and easing supply bottlenecks for Japanese manufacturers, Japan’s export volume will gradually pick up.”

($1 = 140.0300 yen)