Japan’s exports tumbled in July at the fastest pace since the global financial crisis with a resurgent yen and weakness in overseas economies weighing on overseas shipments – leaving the economy and the government more reliant on shaky domestic demand to drive growth.
The 14.0 percent annual decrease in exports in July matched the median estimate in a Reuters poll of economists and was the fastest decline since October 2009.
Japan’s exports have now fallen for 10 consecutive months, the longest losing streak since losses on U.S. subprime mortgages sparked a global financial crisis that almost destroyed the U.S. financial system.
Economists say there is a growing risk that weakness in exports will persist as global economic uncertainty shows little sign of receding, which could undermine Japanese policymakers’ efforts to re-energise the economy.
“Exports do not have the strength required to lead Japan’s economy,” said Norio Miyagawa, senior economist at Mizuho Securities. “This is a clear message that we need to support domestic demand. Government stimulus will help, but only in the short term. There could be more talk of additional monetary easing.”
Exports in July fell due to lower shipments of cars to the United States, ships to Central America and steel to Italy, the data showed.
Exports to China – Japan’s largest trading partner – fell an annual 12.7 percent in July, extending the 10.0 percent decline seen in June.
U.S.-bound shipments fell 11.8 percent year-on-year, versus a 6.5 percent annual decline in the previous month.
The yen JPY= has risen around 20 percent versus the dollar so far this year and further gains would cut deeply into exporters’ earnings and increase deflationary pressure by lowering import prices.
The volume of Japan’s imports of oil and kerosene fell 8.5 percent in July, the first decline in three months.
Recent weakness in industrial output and second-quarter data showing the economy ground to a halt suggests Japan’s demand for commodities could potentially weaken further.
The Bank of Japan will conduct a “comprehensive review” of its quantitative easing and negative interest rate policy at its meeting next month after repeatedly pushing back the timing for its 2 percent inflation target.
Some economists say the BOJ could use the review to ease monetary policy, potentially weakening the yen if bond yields decline further.
Prime Minister Shinzo Abe’s cabinet approved fiscal measures worth 13.5 trillion yen earlier this month to revive a flagging economy and breathe new life into his economic agenda.