Export Sector Weakens in Japan

Tuesday, 28 September 2010

Japan – the country famous for its export sector. Over the last decade or so, Japan has managed to grow this sector exponentially, to the point where the country now relies on the income from this sector more than any other country in the world. However – as we all know – everything in life is subjective.

This means that whilst export growth might be taken for granted in good times – bad times are also a fact of life. Put simply, that means that we shouldn't come to expect positive export growth every single month, for the rest of eternity, from Japan.

As such – anyone with this outlook would have been proven right recently. The Japanese export sector growth statistics were released not too long ago, and the picture they painted wasn't particularly pretty. They showed that whilst the export sector did continue to grow in Japan over the second quarter of 2010, the rate of growth significantly slowed versus other quarters.

In February 2010 for example, the export sector printed an amazing growth rate of 45.3% over the previous year period. That was actually in line with expectations. In August however, the rate of growth slowed to 15.8% - which whilst still impressive and higher than most other country's export sectors, is significantly lower than the 45% print.

The slowdown in growth is actually troubling, not because of the numbers, but because of the circumstances under which the numbers have slowed. This year (2010) – the world economy has seemed to get back on its feet, and most developed countries have seen all of their export and even import sectors bounce off their lows of the previous year.

However, the opposite seems to be true for the Japanese. Whilst times have been getting better for everyone else, the export sector figures have been deteriorating for Japan – to the point where the August read was the worst yet.

Unfortunately, things don't seem to be brightening up any time soon for Japan. The USD/JPY is still sitting at woeful levels (as far as the Japanese central bankers are concerned) and it doesn't seem that the USD will be strengthening any time soon.

Ultimately, the only way that the export sector in the country is going to improve dramatically is if the currency pair USD/JPY improves substantially for the Japanese. If this does happen, even 100 pip move upwards represents about a 1% to 2% growth rate for exports. Hence, whilst some believe that it is only a matter of time for the USD/JPY to rise, others are sitting on the fence and expecting a further slowdown in the export economy in the near term.