Japan Exports Show Little Sign of Quick Recovery

Japan's exports continued to tumble in May, with even shipments to China showing little sign of improvement, suggesting that hopes for a quick recovery in global demand may be premature.

Katsumi Kasahara / AP (AP Photo/Katsumi Kasahara)

Although exports are now falling less after a period of paralysis in the wake of the financial crisis, there has been little recovery in global demand for cars while consumer electronics demand also remains weak.

"The recovery in exports is still slow, and a comeback to last year's levels should not be expected immediately," said Junko Nishioka, chief economist at RBS securities.

Overall, Japanese exports fell 40.9 percent in May from a year earlier, more than the median market forecast for a 39.1 percent fall. On a seasonally adjusted basis, exports fell 0.3 percent in May from April.

Stocks have been climbing in recent months on growing hopes that global economy may be on the road to recovery after the worst turmoil in decades, but they have recently been giving  back some of those gains. The Nikkei 225 Average jumped 45 percent from a March low to 10,170.82 earlier this month, but has slipped back to 9,552.40 as of mid-morning on Wednesday.

Japan's shipments to China, one of the most vibrant economies in the world at the moment, fell
29.7 percent in May from the same month a year earlier, even faster than the 25.9 percent fall logged in April.

Still, the bigger fall in exports is primarily due to a rise in the yen as exports volume fell 36.0 percent in May, little changed from 35.9 percent in April.

The pace of annual falls in exports has slowed after a 49.4 percent tumble from a year earlier in February, as companies have worked down their inventories, and some analysts said the data showed a continued recovery in exports.

"Looking at the trend on month we can see that export volume to both China and the West has picked up thanks to stimulus in China and rapid progress in unwinding of excess inventories," said Tatsushi Shikano, senior economist, at Mitsubishi UFJ Securities.

"Our seasonally adjusted calculation shows export volume rose 3.3 percent from the previous month, and this suggests that May industrial output data will come out strong as expected next week."

Hopes for a rebound in exports has prompted Japanese manufacturers to scale back sharp production cuts, alleviating pessimism over the economy.

Japanese industrial production jumped at its fastest rate in more than half a century in April.

Expectations are growing that export-driven Japan may already be out of recession technically, with the economy seen growing 0.4 percent in April-June after four straight quarters of contraction through January-March.

The Bank of Japan's tankan business survey due out on July 1 is expected to show a rebound in the mood among big Japanese manufacturers.

Still, none of these brighter signs have dispelled concerns that any recovery in Western demand and hence in Japanese exports to those markets will be weak compared with the robust growth before the global crisis as U.S. consumers no longer borrow to spend.

Japanese exports to the United States fell 45.5 percent in May from a year earlier, slightly less than 46.3 percent fall in April.

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With the country's production still down about 30 percent from a year ago despite a recent recovery, many manufacturers are still considered to be operating below break-even point.

If global demand remains weak, Japanese exporters may need to cut more jobs and production facilities, analysts say.

That partly explains why the Bank of Japan has remained cautious about the economic outlook even after raising its economic assessment for two months running.

BOJ Governor Masaaki Shirakawa has also said the bank expects the final demand to remain soft in the near future.

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