Japan's Export Growth Slows as Rising Yen Imperils Recovery
Aug. 24 (Bloomberg) -- Shaun Osborne, chief currency strategist at TD Securities Inc., talks with Bloomberg's Julie Hyman about the outlook for Japan's yen. The yen advanced to the strongest in 15 years versus the dollar and to its highest level against the euro since 2001 even after Prime Minister Naoto Kan told reporters “steep currency gains are undesirable.” (Source: Bloomberg)
Aug. 24 (Bloomberg) -- Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp., talks about the outlook for the yen and U.S. economy. Woolfolk speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
Aug. 24 (Bloomberg) -- Jesper Koll, head of equity research at JPMorgan Chase & Co., talks about the outlook for Japanese stocks. Koll also discusses the prospects for Bank of Japan intervention in the foreign-exchange market, and the nation's government. Koll speaks from Tokyo with Bloomberg's Rishaad Salamat. (Source: Bloomberg)
Japan’s export growth slowed for a fifth month in July, adding to risks in an economy under threat from the yen’s surge to a 15-year high against the dollar.
Overseas shipments advanced 23.5 percent in July from a year earlier, less than June’s 27.7 percent gain, the Finance Ministry said in Tokyo today. The median estimate of 18 economists surveyed by Bloomberg News was for a 21.8 percent increase. From a month earlier, exports fell 1.4 percent, the third monthly drop.
Japan’s export-fueled rebound is losing steam after gross domestic product grew at the slowest pace this year in the second quarter. The yen’s advance is also threatening earnings of companies from Toyota Motor Corp. to Sony Corp., putting pressure on policy makers to curb the currency’s 9.6 percent appreciation this year.
“Yen appreciation is now in play and a stall in exports is finally coming in sight,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “Japan’s economy will likely go into a standstill this quarter.”
The yen traded at 84.29 per dollar at 1:39 p.m. in Tokyo from 84.23 before the report. It reached 83.60 yesterday, the highest since 1995. The Nikkei 225 Stock Average fell 1.7 percent, heading for its lowest close since April 2009.
Imports climbed 15.7 percent in July from a year earlier, leaving a trade surplus of 804.2 billion yen ($9.5 billion), more than the 466.3 billion-yen median estimate of economists.
Kan, Shirakawa
Japan’s currency has climbed against all of its 16 major counterparts in the past month as concern the global recovery will falter boosted demand for the yen as a refuge.
Policy makers have failed to formulate a response to the market volatility, with Prime Minister Naoto Kan only asking ministers to come up with fresh proposals to support the economy after an Aug. 16 report showed growth slowed to an annualized 0.4 percent in the April-to-June period, the weakest pace in three quarters. He spoke to Bank of Japan Governor Masaaki Shirakawa this week, without discussing intervention in currency markets, which Japan has refrained from doing for six years.
“The root cause of currency strength in Japan is deflation,” said Jesper Koll, Tokyo-based head of equity research at JPMorgan Chase & Co. “Clearly there is no one magic bullet, but it needs to be a concerted and coordinated policy effort between fiscal authorities, regulatory authorities as well as monetary authorities.”
One-Sided Moves
Finance Minister Yoshihiko Noda said today that currency movements have been “one-sided” and the government is ready to take “appropriate action” on the yen when necessary. The Bank of Japan is considering further monetary easing, the Nikkei newspaper said today, without saying where it got the information.
Every one-yen gain in the Japanese currency against the dollar reduces Toyota’s annual operating profit by 30 billion yen, according to the world’s biggest carmaker. Sony, which generates more than 70 percent of revenue outside of Japan, says it loses about 2 billion yen of annual operating profit for each yen gain against the U.S. currency.
An index measuring the unit value of exports fell 1.5 percent in July from a year earlier, the first decline in four months, today’s report showed. The rising yen contributed to the decline in the index, RBS’s Nishioka said.
Price Competitiveness
“A higher yen deteriorates Japanese companies’ international competitiveness on prices, which would slow volumes of exports as well,” Nishioka said.
Slower expansions in China and the U.S., Japan’s biggest markets, may also hamper the recovery. Manufacturing growth in the two countries has been cooling, pointing to softer export demand, analyst Naoki Iizuka said.
The manufacturing figures “suggest that the pace of Japanese export growth is likely to slow in the months ahead,” said Iizuka, a senior economist at Mizuho Securities Co. in Tokyo. “We expect the slowdown in Japanese export growth to be clearly visible” in the fourth quarter, he said.
Still, today’s report showed shipments to some regions are improving. The value of exports to China, Japan’s biggest market, climbed 22.7 percent in July from a year earlier, compared with 22 percent in June. Exports to Asia overall rose 23.8 percent, moderating from 31.6 percent.
Exports to the U.S. gained 25.9 percent, accelerating from 21.1 percent in June. Shipments to Europe increased 13.3 percent, compared with 9 percent in June.
To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net
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