Japanese exports slumped last month in the latest sign that economies across Asia are suffering because of China’s slowdown and as uncertainty persists over the outcome of US-China trade talks.
Exports from Asia’s biggest advanced economy fell 8.4 per cent in January compared with a year earlier, the steepest decline since October 2016, with China the biggest culprit.
The weakness in Japan adds to growing evidence that China’s slowdown is rippling across the global economy. That is likely to prompt many Asian central banks to keep interest rates on hold this year.
However, most analysts expect the Chinese economy to stabilise as stimulus measures take effect, and so far there is little sign that the slowdown will turn into a recession.
“I do think the drop in Japanese exports reflects a weakening in the global trade cycle,” said Frederic Neumann, head of economic research at HSBC in Hong Kong. Mr Neumann said that many of Japan’s exports to China are capital equipment that is ultimately used to produce electronics and other consumer products.
Japan’s exports to China fell by 17.4 per cent compared with a year earlier. Exports dropped across a broad range of capital goods including semiconductor production equipment and machine tools.
Trinh Nguyen, Natixis senior economist for Asia emerging markets, noted the fall comes against a backdrop of lower exports from South Korea and Singapore, reflecting a rapid slowdown in regional and global demand.
“Japan’s sharp decline in sales abroad is the nail in the coffin for regional growth and that means that policy easing is coming for the region,” she said. “We forecast no hike for the Fed in 2019 and the rest of the region easing to support growth.”
China’s exports unexpectedly rose 9.1 per cent year on year in January. However, analysts said this was probably due to the timing of New Year holidays, and was unlikely to continue given the weaker global outlook.
Analysts are cautious about extrapolating the slowdown too far into the future. One asset manager in Tokyo noted that the Chinese data on imports from Japan were much stronger than the corresponding Japanese data.
China has taken various measures to boost credit and public spending. “The government has applied a lot of stimulus measures but they still need to gain traction,” said Mr Neumann. “We see a bit of stabilisation coming in Chinese demand later this year.
For Japan, the slowdown in exports is a blow to an economy that has relied heavily on demand from overseas to sustain growth. Reflecting the knock-on effect from lower Chinese demand, Japanese exports to other Asian countries such as South Korea and Singapore also dropped sharply.
Exports to the US rose 6.8 per cent, widening the sensitive bilateral trade deficit, but exports to the EU declined. Overall, Japan recorded a trade deficit of ¥1.4tn ($12.8bn).
The main fear for Japanese policymakers is that slower demand from exports will lead companies to cut back on investment. That in turn will make it harder to sustain economic growth through a scheduled rise in consumption tax from 8 to 10 per cent later this year.
Compared with previous periods of slowdown in China, however, the Japanese economy appears more likely to cope, with solid growth in the fourth quarter of 2018 fuelled by domestic consumption.