Japan Exports Disappoint, Full Benefits of Weak Yen Yet to Show

Tomohiro Ohsumi | Bloomberg | Getty Images

Japan's exports rose less than expected in April from a year earlier due to weak demand from Europe and China, highlighting the challenges confronting the world's third-biggest economy as policymakers try to engineer a sustained revival.

The 3.8 percent annual increase in exports in April was below the median estimate for a 5.9 percent rise and followed a 1.1 percent increase in the year to March.

The result also underscores the limitations of a weak yen in bolstering the trade sector, especially as external headwinds crimp demand for exports.

The uncertainty was underlined recently by a string of weak data from the United States and China, Japan's major export markets.

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Prime Minister Shinzo Abe's policy mix of sweeping fiscal and monetary stimulus, dubbed "Abenomics", has driven the yen to a 4-1/2 year low against the dollar and boosted by 70 percent since November.

However, the benefits of a weak yen has not been fully reflected in the trade sector, partly because manufacturers have been moving production overseas.

The drop in the currency has so far sharply raised fuel import costs and many analysts predict trade deficits to persist through this year. The data suggest that a weak yen is not the cure-all for the Japanese economy that it once was.

"The yen's weakness has pushed up values of both exports and imports, but the benefits from a weak yen have not appeared in export volumes yet," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.

"The economy is expected to stay on a moderate recovery path. It will be difficult to picture the economy being led by external demand. Instead, it will probably be supported by fiscal policy."

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Exports to China rose 0.3 percent year-on-year in April, while exports to the United States jumped 14.8 percent year-on-year, according to the data.

Imports jumped 9.4 percent year-on-year in April, up for a sixth straight month, due to an increase in liquefied natural gas purchases, compared with a 6.7 percent gain expected by economists.

That has brought the country's trade balance into a deficit of 879.9 billion yen, the biggest trade gap for the month of April under comparable data series going back to 1979, according to the finance ministry.

It compared with the economists' forecast for 621.1 billion yen deficit, leaving the trade balance in the red for ten months in a row, the longest such run since 1979-1980 when Japan was hit by surging oil prices.

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For decades, Japan had accumulated solid trade surpluses, but its trade balance swung to a deficit in recent years with a spike in the import bill as Japan's fuel requirements grew substantially following the idling of nuclear plants in the aftermath of the devastating earthquake and tsunami in 2011.

The economy grew 0.9 percent in January-March from the previous quarter led by firm private consumption and a pick-up in exports, with economists expecting the recovery to firm up in the coming quarters.

The Bank of Japan is expected to keep monetary policy steady on Wednesday, having unleashed a massive burst of stimulus last month, promising to inject about $1.4 trillion into the economy in less than two years to end two decades of stagnation.