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Exports from Japan expanded for the first time in three months indicating that strengthening foreign demand could help the country overcome a decline in consumer spending.
According to new data from Japan’s finance ministry, Japanese exports rose by an annual rate of 3.9% in July to rebound from the 1.9% contraction in June with help from its automobile industry. Among the largest contributors to the increase was the 3.4% improvement of deliveries to Asia compared to a year ago which makes up more than half of its total exports. Exports shipped to both China and the US grew as well by 2.6% and 2.1%, respectively.
The report is good news for officials from the Bank of Japan who are depending on the exports industry to boost growth and raise inflation under the government’s “Abenomics” strategy. Prime Minister Shinzo Abe unveiled in June the next part of his plans which include lowering the corporate tax rate and luring more foreign companies to expand in Japan by giving incentives through special economic zones.
Analysts claim it relieves pressure from the central bank to enact more measures to support a rebound from the negative impact an April hike in sales tax has had. Senior economist Hiroshi Miyazaki from Mitsubishi UFJ Morgan Stanley Securities says that, "The BOJ can say with more confidence that it will keep its monetary policy on hold."
While external demand may be making up for weakness in Japan’s domestic market for now, chief economist from Norinchukin Research Institute Takeshi Minami warns that further acceleration in exports is unlikely with Europe still struggling. As a result, this could shift the pressure towards expanding in Asian markets.
Exports struggled in the first few months of the year due to weaker demand in Asia and a shift in production in overseas economies. Car exports to the US market declined compared to the previous year by 10.3%, marking the fourth consecutive month it has done so, with Japanese companies choosing to relocate production to other countries.
During the second quarter, exports decreased alongside Japan’s GDP which shrunk by 6.8%, the largest fall since a major earthquake in 2011.
