Japan’s Exports Declined More Than Expected

Japan’s exports fell more than economists estimated in May, adding to signs the world’s third- largest economy may struggle to recover from the March 11 earthquake and tsunami.

Exports decreased 10.3 percent from a year earlier after April’s revised 12.4 percent drop, the Finance Ministry said today. The median estimate of 25 economists surveyed by Bloomberg News was for an 8.4 percent decline. The nation posted a trade deficit of 853.7 billion yen ($10.7 billion), the second biggest since comparable data were made available in 1979.

Shortages of power and parts have disrupted production and slowed overseas sales, prompting Japanese companies including Honda Motor Co. to forecast weaker earnings. Higher unemployment in the U.S. and weakening demand in Asia indicate Japan won’t be able to rely on global demand to pull itself out of a slump caused by the quake.

“The state of the global economy is a little worrying,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Both the U.S. and Europe aren’t doing that great and emerging economies are also tightening at an incredible pace, increasing uncertainty.”

Overseas shipments rose a seasonally adjusted 2.5 percent in May from April, the first advance in three months, today’s report showed, an improvement Kato says reflects a recovery from supply disruptions spurred by the earthquake.

The yen traded at 80.15 per dollar at 10:05 a.m. in Tokyo, unchanged from before the report was published. The Nikkei 225 (NKY) Stock Average rose 0.6 percent.

Extended Slump

Recent data suggest the economy’s contraction has extended into this quarter. Machinery orders fell 3.3 percent in April, the first decline in four months, a sign companies are reluctant to spend after the March disaster. The unemployment rate climbed and households cut spending in April.

Honda Motor, Japan’s third-largest carmaker, last week forecast a bigger-than-estimated 63 percent decline in full-year profit, citing production disruptions on parts shortages and the strong yen.

Hitachi Ltd., a Japanese electronics and power-equipment maker, projected that net income will drop 16 percent in the year ending March 31 after the disaster crippled its factories.

“Given a slowdown in the overseas economy, it’s difficult to expect a long-term economic expansion, although a recovery in production is becoming clear,” Junko Nishioka, chief economist at RBS Securities in Tokyo, said before the report. “A V-shaped recovery scenario for later this year is looking fragile.”

Shipments Slide

Shipments to the U.S. fell 14.6 percent in May from a year earlier, compared with a 23.3 percent drop in April, the report showed. Sales to Europe decreased 8.8 percent.

Exports to China, Japan’s largest market, fell 8.1 percent, compared with a 6.8 percent drop in April. Shipments to Asia, where countries from South Korea to the India have raised borrowing costs to quell inflation, slid 8.7 percent.

An increase in energy prices pushed up import bills. Crude oil prices have gained about 20 percent in the past year and Japan gets virtually all of its oil from abroad. Imports rose 12.3 percent in May from a year earlier, today’s report showed.

“Japan’s trade deficit could remain intact for a prolonged period,” Kyohei Morita, chief economist at Barclays Capital in Tokyo, said before the report. Still, “the driver is likely to change from decreasing exports to increasing imports,” which isn’t bad as it reflects domestic demand for reconstruction.

The nation’s gross domestic product shrank at an annualized 3.5 percent rate in the first quarter. The economy may contract around a 3 percent annual pace in the second quarter before resuming growth in the second half of the year, according to the average forecast of 43 economists in a survey by the government- affiliated Economic Planning Association released on June 8.

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

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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