Japanese exports fell in February for the first time in three months, dropping more than economists expected, as the timing of Lunar New Year holidays cut business days in China, while the coronavirus and extreme weather weighed on other key markets.
The value of overseas shipments slid 4.5 percent from a year ago, the finance ministry reported on Wednesday. Exports to the US and Europe declined at a faster pace than in January, while gains to China slowed sharply.
Due to reduced business days in Asia during the holidays, weaker shipments may not indicate as big a slowdown as the figures suggest, but trade still didn’t hold up as well as economists expected. Analysts predicted a much smaller 0.2-percent drop.
Exports are especially key for the recovery now because declining consumer spending is seen pushing Japan’s economy back into contraction this quarter amid a renewed declaration of emergency that has lasted for more than two months in the Tokyo region.
Key insights
Economist Hiroaki Muto at Sumitomo Life Insurance Co. said Japan’s exports were probably a little stronger than they look, with February’s weaker results likely the result of temporary factors including extreme-cold weather in the US and tighter lending conditions in China, in addition to the holidays.
“Cold weather doesn’t last forever and China won’t put on the brakes too far,” Muto said, adding that the stimulus package recently adopted in the US will start to support the global economy soon, with world growth accelerating next quarter.
For Japan, reports on machinery orders and factory production suggest the recovery could return to a solid footing once the emergency ends, which is likely to happen this weekend, according to local media.
Although the Lunar New Year holiday weighed on business across Asia in February, demand from China has been providing key support to Japan’s exports and overall recovery for months. A recent drop in the yen against the dollar is adding another tailwind for Japanese makers of cars and electronics, boosting the value of repatriated income and making their products more competitive.
What Bloomberg Economics says…
“Japan’s merchandise trade was distorted by shifts in demand around the Lunar New Year holidays in China and other economies in February [versus in January last year]. Smoothing out the bumps over the first two months of 2021, export growth probably slowed from its December pace.”
Image credits: Bloomberg