As demand for Japanese products weakens in the United States exports to the EU and China have steadily been picking up some of the slack - as explained at greater length in this post - and exports to China, Japan's second-largest export market, rose 8.4 percent in December. Exports to the EU - at 1.09 trillion yen - were also up slightly on November, but still below the October high of 1.14 trillion yen.
Today's numbers suggest that what are still record exports to Asia may fail to make up for slowing shipments to the U.S. since a steeper U.S. slowdown could also stifle demand in Asia, and particularly in China, where the risks of a slowdown as the year advances do seem to be growing. Imports rose 12.1 percent in December to a record, causing the trade surplus to narrow to 877.9 billion yen ($8.2 billion).
Instability in financial markets and growing volatility in the carry trade are also producing a rise in the value of the yen, making the outlook for exporters even more gloomy. The yen has gained 5 percent against the dollar over the last year, and has also been rising against the euro of late. The yen traded at 106.44 per dollar at 12:00 p.m. in Tokyo from 106.67 before the report was released.
Half of Japan's shipments overseas are settled in U.S. dollars even though the country is increasingly coming to rely more on the EU and China and other emerging markets for trade.
The yen is fast approaching the point at which companies say they won't be profitable, with a value of 105 yen to the dollar being seen more or less as a break point. Japan's currency is already 8 percent above the level on which Japan's largest exporters calculated their profit forecasts for the year ending March 2008.
China, including Hong Kong, overtook the U.S. as Japan's largest export market in 2007, today's report showed. Exports to the two markets rose to 17.4 trillion yen. Shipments to the U.S. fell slighly - for the first time in four years - to 16.904 trillion yen, down from 16.933 trillion yen in 2006 . Excluding Hong Kong, exports to China totaled 12.8 trillion yen, meaning the U.S. is still Japan's single biggest market.
