Japan posted its first monthly export decrease over two years, as weaker demand in its most significant trading partners in China

August 21, 2023: Japan posted its first monthly decrease in exports over two years, as weaker demand in its most significant trading partners in China and the rest of Asia covered prospects for evolution in the world’s third-largest economy.

On Wednesday, according to provisional information released by Japan’s Ministry of Finance, exports decreased by 0.3% in July from a year earlier for the first time since February 2021. Exports to Asia plunged almost 37%, while those to China contracted 13.4% in an eighth consecutive monthly decline, underscoring the magnitude of the slowdown in the mainland.

“Luckily, at this moment, [the weakness in China exports] is completely offset by an increase in exports to U.S. and Europe, but as you know, there are a lot of uncertainties about the U.S. and European economies,” Sayuri Shirai, an economics professor at Keio University, told on  Thursday.

Japan’s domestic demand showed no meaningful improvement, underscored by imports that slumped 13.5% in July. Both export and import numbers were slightly better than expected. However, Japan swung to a trade deficit of 78.7 billion yen, falling far short of a median estimate for a 24.6 billion yen surplus.

A surge in imports had propelled a provisional 6% growth in Japan in the second quarter, though economists expect global demand to weaken in the year’s second half.

“I think for Japan, Japan’s exports to China counts for 20% of its total and Asia, 50%, so we have to watch what’s happening in China,” Shirai said.

On Wednesday, Chinese Premier Li Qiang said that the country would work to achieve its annual economic targets. His remarks came from a slew of financial data that decreased short of expectations, prompting economists to warn that China might not achieve its 5% growth target.

Coupled with faltering domestic demand, the Bank of Japan is unlikely to have the impetus to move away from its ultra-easy monetary policy aimed at reflating the economy.

Continued weakness in the Japanese yen is another concern, as the currency touched 146 yen to the dollar.