Japan Exports Stall as Financial Crisis Bites

Japan's exports grew only slightly in September from a year earlier as the spreading effects of the global financial crisis take their toll on demand for Japanese goods, prompting renewed speculation of an interest rate cut.

CNBC.com

A dive in car shipments to the United States and slowing demand from emerging economies reinforced worries that the Japanese economy, heavily dependent on exports by its big firms, is heading into recession.

"As global inflation abates and economic slowdown becomes more evident, the BOJ must place more emphasis on downside risks to the economy and will need to cut interest rates as early as next week," said Takeshi Minami, chief economist, Norinchukin Research Institute.

Japanese share prices tumbled as much as 7 percent after Wall Street shares sank to a five-year low on fear of a deep recession in the United States, while the yen hit a five-year high against the euro on fears for the global economy.

Exports grew only 1.5 percent in September from a year earlier, well short of a median forecast for a 5.2 percent rise, Ministry of Finance data showed on Thursday.

That followed a 0.3 percent rise in August from a year earlier, when Japan logged its first effective deficit in nearly 26 years as sky-high oil prices pushed up imports while overseas
demand for Japan-made goods weakened due to the spreading financial crisis.

"Demand is weakening across the globe. Not to mention the United States, falls in exports to the European Union are accelerating. Export growth to Asia is also slowing, making
'decoupling' history." said Junko Nishioka, economist at RBS Securities.

The Japanese government warned last week that the downtrend in the world's second-largest economy was likely to continue for the time being as the global slowdown was spreading to Asia, whose economic strength has so far served as a buffer for Japan. Japan's economy shrank in the second quarter at its sharpest rate in seven years as crumbling U.S. and European export markets hit factories, and consumers tightened their belts in the face of
high energy and grocery prices.

Exports to the United States fell 10.9 percent from a year earlier, after posting their biggest-ever fall of 21.8 percent in August data. It was the 13th straight monthly decline.

Exports to the European Union fell 9 percent, their fourth fall in five months of data, as the region has been engulfed in the financial crisis.

Shipments to Asia, which have held up in the face of problems elsewhere, rose only 2.9 percent.

Japan's trade surplus almost evaporated as a still-hefty oil bill sent imports up 28.8 percent from a year ago. The trade surplus shrunk 94 percent.

With U.S. financial problems rattling markets, the Bank of Japan has been widely expected to hold interest rates steady, but there is speculation that the BOJ may have to cut them.

The BOJ will hold its next policy board meeting on Oct 31, with most economists still expecting no change despite deep cuts made by other major central banks in recent times.

The central bank is widely expected to downgrade its economic forecast at its half-yearly economic outlook report.

Alarmed by the intensifying downside risks to the global economy and the banking system, Japanese Prime Minister Taro Aso last week instructed his ministers to compile an additional
economic stimulus package.

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