Global Growth Fuels Japanese Exports Despite a U.S. Pullback

By Jason Simpkins
Associate Editor

Japan's yen-denominated trade surplus grew a whopping 66.1% in the month of October, the third-straight monthly increase and a jump that helped continue to fuel economic growth in that country's domestic market, that nation's Finance Ministry said last week. However, Japan's progress could be jeopardized if conditions in the U.S. economy continue to worsen.

Overall, Japan's exports increased 13.9% from a year ago to a record $68.5 billion (7.5 trillion yen), despite a strengthening of the country's currency that led to a decline in exports to the U.S. market. According to Reuters News Agency, the median market forecast was 12.4%. As a result Japan's trade surplus rose to $9.27 billion (1.02 trillion yen). Shipments to China and other Asian nations rose to records, pushed by exports of automobiles, semiconductors and telecommunication devices.

Japan's trade surplus with the United States shrank by 8.5% from last year to $6.53 billion (717.3 billion yen), as exports to the U.S. decreased 1.5% to $13.64 billion (1.5 trillion yen).  Less construction machinery and fewer cars were shipped to the United States, an indication that the U.S. housing slump is spilling over into other economies.

Fortunately Japan's exports were buoyed by strong growth in emerging markets. Exports to Asian nations rose 12.9% to a record high $32.25 billion (3.5 trillion yen), driving Japan's regional surplus 59.5% to $1.59 billion (175.1 billion yen). 

Shipments to China, which has surpassed the United States as Japan's biggest trade partner, rose 19.2% to $10.67 billion (1.17 trillion yen), an all-time high. As a result, Japan's trade deficit with China tightened by 36%.

"Exports to the United States fell, but not to such an extent that it showed subprime problems were taking a severe toll on Japanese Exports," Takeshi Minami, chief economist at Norinchukin Research Institute told Reuters.

"But it's worrying that a slowdown in exports of cars and construction machinery is becoming noticeable," he added.

A weak U.S. dollar and strengthening yen have also done significant damage to Japan's export business.  The yen rose to its highest level in more than two years against the dollar last week as losses mounted in the credit market, fuel prices rose, and speculation swarmed about another Fed rate cut in December.  The yen advanced as high as 108.26 per dollar last week, its strongest showing since June 2005. 

On a year-over-year basis, the Japanese economy grew 2.6% in the July-September quarter. Gross domestic product (GDP) grew 0.6% from the previous quarter, according to data from the nation's Cabinet Office.  Still, some economists worry that if the U.S. economy continues to drag, it will eventually take a toll on foreign economies - including Japan's.

"If the U.S. economic slowdown is prolonged, robust demand in Asia and emerging nations may not be enough to keep exports strong," Junko Sakuyama, an economist with Dai-ichi Life Research Institute, told Reuters.

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