Japan Export Gains Offer Growth Momentum as Sales-Tax Rise Looms

Japan’s exports rose the most since 2010 in August, boosting Prime Minister Shinzo Abe’s growth drive even as rising energy costs extended the streak of trade deficits to the longest since 1980.

Exports rose 14.7 percent from a year earlier, the sixth straight advance, a Finance Ministry report showed in Tokyo, in line with the median estimate of analysts surveyed by Bloomberg News. The trade gap was 960.3 billion yen ($9.8 billion).

A surge in exports to the U.S., along with a rebound in shipments to China in the wake of bilateral tensions last year, are offering momentum to Japan as it prepares for the first sales-tax increase since 1997. Rising competitiveness from the yen’s 20 percent drop against the dollar the past year also has helped manufacturers including Panasonic Corp. as they cope with higher energy costs with the nation’s nuclear industry shuttered.

“We are finally seeing a clear recovery in exports, led by a weak yen and a moderate global recovery,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “My biggest concern is the planned sales-tax increase next year. A recovery in exports will help cushion the impact but a higher levy could still be a big drag on the economy, while risks remain in Europe and emerging markets.”

The Nikkei 225 Stock Average rose 1.8 percent in Tokyo today, rallying after the U.S. Federal Reserve yesterday unexpectedly refrained from paring back its monetary stimulus. The yen was down 0.5 percent at 98.42 per dollar.

Household Assets

With the benchmark stock-market gauge rallying 58 percent in the past year, Japanese households saw their assets increase 5 percent over the past 12 months, to 1,590 trillion yen, a separate report showed today. The increased wealth may help consumers as they gird for a scheduled 3 percentage point bump in the sales tax in April, to 8 percent.

Japan must create an ’Abenomics’ for the tax system that would review corporate rates and tax regulations. Cutting the effective tax rate and bringing forward the abolition of a temporary levy for earthquake reconstruction are among the ideas that will be considered, Chief Cabinet Secretary Yoshihide Suga said in an interview today at the prime minister’s residence in Tokyo.

Abe instructed Finance Minister Taro Aso to include corporate-tax reductions in a package of measures aimed at shielding the economy from the sales-levy hit, the Nikkei newspaper reported today. Economists surveyed by Bloomberg earlier this year forecast the administration will enact a 5 trillion yen supplementary budget.

Kuroda Ready

Lower tax rates would give a further boost to companies seeing profit growth from the yen’s drop. Panasonic President Kazuhiro Tsuga said in a Sept. 5 interview that Japan’s second-largest television maker sees its full-year earnings beating its forecast, helped by the exchange rate.

Bank of Japan Governor Haruhiko Kuroda said earlier this month that the central bank also could take measures should its 2 percent inflation target become endangered.

Takahide Kiuchi, the board member most openly critical of the BOJ’s policies, warned in a speech in Hokkaido today that the central bank could be swayed by market expectations, prompting additional easing that would do more harm than good.

Along with the planned sales-tax increase, the world’s third-largest economy is contending with higher energy costs. The halting this week of Japan’s last operating nuclear reactor leaves the nation more vulnerable to swings in crude oil prices, which have soared around 18 percent this year.

Fed Support

Energy purchases contributed to a 16 percent gain in total imports in August, today’s trade report showed. Export growth accelerated from a 12.2 percent pace in July, compared with the median of 23 forecasts for a 14.5 percent increase. Shipments to the U.S. jumped 21 percent from a year earlier and those to China, Japan’s biggest trading partner, surged 16 percent.

The U.S. economy expanded 2.5 percent in the April-June period, faster than in the previous two quarters. In China, data last week showed industrial output grew at the fastest pace in 17 months in August, with retail sales advancing more than expected.

Fed policy makers’ decision to hold off on paring its monthly asset purchases pending more evidence of lasting improvement in the U.S. economy is good news for Japan, Minami said. “It will contribute to growth in Japan’s exports,” he said.

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