Japan's Export Decline in September

By Makiko Yamazaki

TOKYO (Reuters) – Japan's exports fell for the first time in 10 months in September, as released by data on Thursday. This poses a concern for policymakers, as prolonged weakness in global demand could complicate the central bank's strategy to exit years of ultra-easy monetary policy.

Soft demand in China and slowing growth in the U.S. have negatively impacted exports. Additionally, the yen's recent increase, partially due to the Bank of Japan's unexpected rate hike in late July, contributed to the decline in export value.

Kazuma Kishikawa, an economist at Daiwa Institute of Research, noted, "It's possible that exports will continue to struggle in coming months due to uncertainties particularly in the Chinese economy." He mentioned that China's domestic demand seems weaker than expected, with the stimulus packages taking time to have an effect.

Total exports in September dropped by 1.7% compared to a year earlier, according to the Ministry of Finance data. This missed a median market forecast that predicted a 0.5% increase, following a revised 5.5% rise in August.

Notably, exports to China, Japan's largest trading partner, fell by 7.3%, while those to the U.S. decreased by 2.4%. Weak demand from automakers contributed significantly to these declines.

Kishikawa remarked, "The latest data serves as a reminder for the BOJ that a sharp rise in the yen can drag exports," although he added that small declines like September's are unlikely to impact future BOJ rate decisions.

Imports in September grew by 2.1% year-over-year, which was below market expectations of a 3.2% increase.

Consequently, Japan faced a trade deficit of 294.3 billion yen ($1.97 billion) in September, larger than the forecasted deficit of 237.6 billion yen.

Bank of Japan Governor Kazuo Ueda has pointed out external risks like U.S. economic uncertainties in his recent dovish commentary, indicating that policymakers can take their time assessing these risks before deciding on the timing of any interest rate hikes.

While a steady interest rate is anticipated during the BOJ's meeting on October 30-31, it is expected to maintain its forecast for inflation around its 2% target through March 2027, according to sources close to the matter.

Nevertheless, a quarterly central bank survey indicates that manufacturers have yet to fully feel the effects of the slowing global economy, with business sentiment holding strong and companies maintaining robust spending plans.

($1=149.5400 yen)