Japan Export Growth Slows More Than Forecast as Economy Loses Trade Boost

Japan’s export growth slowed more than forecast in October, weakening the boost from trade that has led the nation’s recovery from its deepest postwar recession.

Overseas shipments increased 7.8 percent from a year earlier, the Finance Ministry said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a 10.7 percent gain.

The report adds to concern that Japan is losing its main growth engine after trade last quarter failed to contribute to the expansion for the first time since the global financial crisis. The yen’s advance against the dollar this year has imperiled the earnings of exporters and manufacturers from Nissan Motor Co. to Panasonic Corp.

“The quarter’s off to a bad start,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “Exports could decline this quarter and that’ll be a double hit for the economy” given consumer demand is also going to slump, he said.

The yen traded at 83.49 against the dollar at 12:46 a.m. in Tokyo, little changed from before the report was released. The currency has gained more than 11 percent this year, threatening the value of companies’ overseas earnings.

Gross domestic product rose at an annual 3.9 percent pace in the third quarter as consumer spending increased ahead of the expiration of a subsidy program for fuel-efficient cars. Industrial production has fallen for four months as automakers scale back output after orders increased earlier this year as stimulus measures boosted demand.

Weak Production

“Exports will probably expand at a modest pace, and we can expect production to be weak for some time” because of the stronger yen and slower global growth, Bank of Japan board member Seiji Nakamura said in a speech today in Fukushima, northern Japan. “The recovery in automobile output will be key and I see that happening in early fiscal 2011,” he said.

Imports climbed 8.7 percent in October from a year earlier and the trade surplus widened to 821.9 billion yen, today’s report showed. Seasonally adjusted, exports were unchanged and imports rose 0.7 percent from September.

The value of exports to China, Japan’s biggest market, advanced 17.5 percent in October from a year earlier, compared with a 10.2 percent increase in September. Shipments to the U.S. gained 4.7 percent, compared with 10.4 percent in September. Sales to Europe fell 1.9 percent, the first decline since November 2009.

Falling Prices

Panasonic said last month that falling prices, the stronger yen and more expensive raw materials prevented the company from raising its full-year profit forecast, even as earnings exceeded its projections for the first half.

“The strong yen will be a major hurdle in the TV business in the second half,” Hideaki Kawai, the executive officer in charge of finance and accounting at Panasonic, said Oct. 29. “It’s an extremely severe situation.”

The yen’s climb also gives the nation’s companies an incentive to shift production overseas. Nissan Motor expects to build as many as 1.6 million cars and trucks at U.S. and Mexican plants by late 2012 to limit pressure from a rising yen, Executive Vice President Carlos Tavares said this month.

Japan’s effort to stem its currency’s advance by intervening in foreign-exchange markets on Sept. 15 failed to stop the yen’s gains. Japan’s currency climbed to 80.22 per dollar on Nov. 1, the highest level since April 1995.

Evidence of a slowing expansion puts more pressure on Prime Minister Naoto Kan to implement his stimulus plans and on Bank of Japan Governor Masaaki Shirakawa to come up with fresh ways to support the economy.

Policy Action

“We’ll continue to carefully examine the outlook for economic activity and prices, and take policy actions in an appropriate manner if needed,” BOJ board member Nakamura said.

Japan’s lower house of parliament on Nov. 16 approved legislation to fund a 5.1 trillion yen ($60 billion) stimulus to protect companies from the strong yen. The bill becomes law within 30 days even if the opposition-controlled upper house rejects it. To foster growth, the Bank of Japan last month cut its benchmark interest rate and created an asset-purchase fund.

At the same time, there are signs that demand in China and the U.S., Japan’s largest customers, is holding up. China’s manufacturing expanded at the fastest pace in six months in October, while the U.S. Institute for Supply Management’s factory index rose to a five-month high last month.

“We are starting to see some degree of upside risk to our fourth-quarter export forecast as modestly positive signs are beginning to be seen in the global manufacturing cycle,” said Chiwoong Lee, senior economist at Goldman Sachs Group Inc. in Tokyo.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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