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Japanese exports slow
down
By Richard Hanson
TOKYO - Japanese exports rose at the
slowest pace in a year in December as demand
cooled in the US and China, taking a heavy toll on
Japan's growth. The Finance Ministry said in a
report on Wednesday that exports grew 8.8% from a
year earlier compared with November's 13.4%, while
imports rose 10.9%. The economy grew just 0.1% in
July-September from the previous three months,
weak external demand hurting growth for the first
time in eight quarters, capping industrial output.
China replaced the United States as
Japan's largest trading partner in 2004, the
Finance Ministry announced. The trade volume
between China and Japan in the past year totaled
22,200 billion yen (US$213.3 billion), the highest
since 1947. Japan-US trade stood at about 20.48
trillion yen last year. Japan's trade surplus in
December fell by a seasonally adjusted 3.9% from
the previous month to 949.7 billion yen, while
exports decreased 5.6% to 5.04 trillion yen and
imports fell 6% to 4.09 trillion yen. On a
year-on-year basis, however, the trade surplus
rose 1.8% to 1.14 trillion yen, slightly above
market expectations.
The country's trade
surplus had been growing steadily on a
year-on-year basis due to strong exports of
electronic products to the US, Europe and
especially China. But exports of several major
digital products have dropped in recent months.
Anticipating a slowdown in demand, manufacturers
have cut production for the three months ended
September 30 - the first quarter in the last five
to suffer such a cutback - pulling down economic
growth. Sony, Elpida Memory and Hoya have all
slashed their profit forecasts this month as their
sales volumes failed to meet expectations. On the
other hand, overall imports have risen because of
skyrocketing crude-oil prices. Oil is Japan's
single largest import
In its December
report, the Bank of Japan had taken the cautious
view that the economy was recovering though there
seemed to be somewhat weak movements in industrial
production. The poor result on the exports front
spells bad news for Japan. Japanese industry, and
hence Japan's economic growth rate, over the past
two years or so have been largely dependent on
profit growth in exports, primarily to China, the
US and the rest of Asia. According to Peter
Morgan, chief economist for HSBC Securities
(Japan) Ltd, corporate profit for most Japanese
companies has come to depend on exports.
"The domestic economy is essentially still
driven by external factors, and that really has
not changed," Morgan told Asia Times Online. "I
think we are all waiting for the time when the
domestic economy can develop a bit on its own
steam, but so far we haven't seen very much of
that."
Comparing data from the
government's Cabinet Office, Morgan found that
there appears to be a 94% correlation between
exports and domestic production. Thus almost all
growth in domestic demand is far too dependent on
export growth. "From the middle of 2003 to the
middle of last year, we had a big surge in
exports, particularly because of China. But
exports have basically been flat since. And that
has translated into flat industrial production,"
said Morgan.
Given the over-dependence of
its economy on exports and the cooling off of
demand in China and the US, Japan's chances of an
economic recovery thus seem rather slim at the
moment. The slowdown in the economy, in turn, is
already threatening to dampen the outlook for the
fragile banking industry. Over the past two years,
banks have been doing quite well partly because of
six consecutive, export-led quarters of economic
growth. Banking authorities are worried that this
prosperity may have led the banks to invest
heavily in real estate. Even a minor economic
slowdown could prick this real-estate bubble.
The Financial Services Agency (FSA), which
regulates financial institutions, is particularly
concerned with the banks' role in lending to
real-estate developers through various clever
schemes, some of which resemble those in the past
speculative bubbles in Tokyo-centered property
construction. Any sign of even a modest weakness
in the economy or the property market will prompt
auditors to look more rigorously into bank
profits, according to Philip A Jones, an
independent banking and credit-risk analyst. The
price of bank shares, which are highly sensitive
to profit projections, could then take a beating.
There have, however, been some conflicting
views on the economy's prospects. The Organization
for Economic Cooperation and Development (OECD)
reported last week that Japan is emerging from a
decade of stagnation, but still faces a number of
problems, such as entrenched deflation, to
maintain its economic expansion. "Japan's economy
is in the best condition in a decade," said
Randall Jones, OECD economist for Japan and South
Korea, citing the improvement in business
confidence and profit margins. Japan's economy has
grown more than 2% per annum since 2002, the OECD
said in its annual economic survey for 2005. It
expects the Japanese economy to grow 1.4% in 2005
and 1.5% in 2006 after an estimated 2.9% expansion
in 2004.
Jones said the recovery would be
"the longest expansion in Japan since the collapse
of bubble economy", supported by strong business
investment and growth of exports. There is one
problem, however. The Bank of Japan has failed so
far to break the back of domestic deflation that
continues to push prices and the value of assets
downward. "Thus far, it has not been successful in
stopping deflation," Jones admitted.
Other
independent outfits have adjusted their views of
Japan. The Economist Intelligence Unit (EIU)
reports that it has made extensive revisions to
its forecast for Japan after the recent release of
a fresh set of national accounts data compiled
using the chain-linked methodology already in use
in the United States, the United Kingdom, Canada
and Australia. The new government data indicate
that Japan's recovery in 2003 and 2004 was
shallower than that suggested by the old one. This
is mainly because of a significant downgrading of
business investment growth. Private consumption
growth has also been revised downward, though more
modestly. EIU now expects Japan's real gross
domestic product to grow by 1.4% year-on-year in
2005, after an estimated 2.9% year-on-year
increase in 2004. Not exactly numbers to crow
about but ones that Japan would only be too happy
to achieve all the same.
Richard
Hanson, veteran correspondent and expert on
Japanese economy, finance and politics, is author
of Money Lords: The Pride and Folly of Japan's
Finance Ministry Elites.
(Copyright 2005
Asia Times Online Ltd. All rights reserved. Please
contact us for information on sales, syndication and republishing.) |
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