Europe Debt Crisis Restrains Rebound in Japan’s Exports: Economy

Japan Trade Deficit Exceeds Forecasts as Energy Costs Swell
A container is loaded onto a container ship at a shipping terminal in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Japan reported its first trade deficit with the European Union since the Finance Ministry began tracking data in 1979 as the debt crisis roiling Spain and Greece limits a rebound in Japanese exports.

An overall shortfall of 907.3 billion yen ($11.5 billion) for May, reported today in Tokyo, was bigger than all 24 estimates in a Bloomberg News survey of economists. Exports rose 10 percent from a year earlier, the most in 17 months, while imports exceeded estimates. The trade gap with the EU was 11.1 billion yen.

Shipments to the EU fell 0.9 percent even as they surged 38 percent to the U.S., underscoring the threat to Japan’s recovery as Group of 20 leaders meeting in Mexico press Europe to step up damage control. Governor Masaaki Shirakawa said today that Europe poses the biggest risk as his nation’s economy returns to the path of “moderate recovery.”

“The Bank of Japan must be closely monitoring markets as high uncertainties remain in Europe,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. They’ve indicated they will act “in a timely manner if markets are roiled and the yen gets much stronger.”

JPMorgan Chase & Co. and BNP Paribas SA say Shirakawa’s policy makers may add to easing in July after standing pat this month as they watched efforts to contain Greek and Spanish fiscal and banking woes.

The Bank of Japan should be ready to “take appropriate actions without ruling out any options in advance” should the European crisis worsen, some board members said in May, according to minutes released today.

BOJ Nominees

The upper house of parliament today approved Prime Minister Yoshihiko Noda’s appointees to the Bank of Japan’s board, confirming two economists who have indicated support for loose monetary policy. The pair are Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co.

The upper house blocked BNP Paribas SA economist Ryutaro Kono’s nomination in April after some lawmakers said he wasn’t aggressive enough in favoring stimulus. The central bank is under pressure from politicians to stoke growth and defeat more than a decade of deflation even after boosting its asset-purchase fund by 20 trillion yen ($253 billion) this year.

“This will add voices for additional monetary easing to the BOJ board as they have shown support for further actions,” said Koji Ochiai, Tokyo-based chief market economist at Mizuho Investors Securities Co., a primary dealer.

The 9.3 percent gain in Japan’s imports exceeded analysts’ median forecast of 3.3 percent, while exports compared with a 9.7 percent estimate. Outbound shipments rebounded from the slump a year earlier that followed the earthquake and tsunami that devastated north-eastern regions.

Focus on Fed

Asian stocks rose and the dollar held losses today amid speculation the U.S. Federal Reserve will consider further stimulus measures when it concludes its meeting today. The MSCI Asia Pacific Index gained 1 percent.

The yen traded at 78.91 per dollar as of 4:08 p.m. in Tokyo, compared with a post-World War II high of 75.35 in October. The currency has strengthened about 6 percent from this year’s low in mid-March, trimming exporters’ overseas sales.

Euro-area leaders at the G-20 summit pledged to take “all necessary policy measures” to defend the currency union as Spain grapples with a banking crisis.

In the U.K, the Bank of England will today publish minutes of a June 6-7 policy meeting, showing how officials voted when they kept their bond-purchase target unchanged. Labor market data is due in the U.K. and the U.S.

Risks for Japan

The BOJ minutes showed some members’ concern that the Japanese economy “would be adversely affected if a substantial risk materialized, stemming from the European debt problem.”

The euro region economy is “likely to remain sluggish for the time being” because of austerity measures and “relatively tight financial conditions,” board members agreed.

Japan’s trade deficit in May exceeded a median estimate for a 544.4 billion yen shortfall as nuclear plant shutdowns in the aftermath of the disaster and nuclear crisis in March last year lead to increased imports of liquefied natural gas and coal.

The nation’s trade deficit in the first five months of 2012 has already exceed that for the whole of last year. The shortfall from January through May was 2.97 trillion yen, compared to 2.56 trillion yen in 2011, government data showed.

On June 16, Prime Minister Yoshihiko Noda approved the restart of two reactors at Kansai Electric Power Co.’s Ohi nuclear plant in a move that may bring atomic power back to the country next month, helping trim the import bill.

‘Long-Term Shifts’

“Trade deficits are likely to continue,” Kodama said. “Resuming a few reactors won’t be enough to make it a surplus.”

The yen will weaken against the dollar as Japan continues to report trade shortfalls, according to Robert Sinche, global head of currency strategy at Royal Bank of Scotland Plc.

“This is one of those big, long-term shifts,” Sinche said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “It was coming anyway because of the aging population and the outsourcing of production, but it’s really been accelerated by their nuclear accident and the need to now import fossil fuels.”

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