Japan's exports fell year on year for the first time in more than four years in June (although they had been down month on month in both May and April, and ironically they were up in June over May) Exports decreased 1.7 percent in June 2007, according to the Finance Ministry this morning. The drop was the first since November 2003.
Exports to the U.S. were down by 15.4 percent year on year, and this was the 10th monthly drop and the biggest since November 2003. Shipments to Europe were down 11.2 percent, the second straight decline. Exports to China have been, more or less, holding up, and were up 5.1% on the year, although this is still down from a 12.2% rate of increase in May. Exports to Asia in general rose 1.5 percent, the slowest pace in two years.
Central banks across Asia have been raising interest rates to combat inflation, slowing economic growth and weakening demand for Japanese goods. Policy makers in the Philippines, Thailand and Indonesia all raised borrowing costs this month. It is quite possible that the Reserve Bank of India will increase rates again next week.
Exports to Vietnam rose at an annual 28.9%, down from its February peak of 88% (y-o-y), to India they were down to 19.3% from 40.1% in February, Brzil was down to 20.7% from 38.6% in February. Only exports to Indonesia (at 26.6% y-o-y) and Russia, at 39.4% (y-o-y) are really holding up, and these are, of course, oil exporters.
Imports on the other hand climbed 16.2 percent to a record because of the surging oil costs. That caused the trade surplus to shrink 89 percent to 138.6 billion yen ($1.3 billion). This will obviously have a negative impact on GDP growth.
My feeling is that with exports now falling y-o-y (they have already been falling m-o-m), and domestic consumption congenitally weak there is really now no way Japan can avoid recession (and my guess is that we are seeing the same thing in Germany).
The mechanics that did it are easy enough to identify. First there was the slowdown in the US, which Japan compensated for by growth in Europe as the dollar went down and the Euro went up, then there was the slowdown in Europe which was compensated for by growth in emerging markets in the CEE, while Japan leveraged growth in other parts of Asia. Then came inflation, monetary tightening and a decline in risk appetite, so now even the emerging markets are slowing, So down we all go, I guess.
