Japan’s annual export growth in February was short of market expectations and a Bank of Japan policymaker warned about the outlook as the world’s third-largest economy faces a sales tax hike next month that could dent economic activity.
The weaker-than-expected trade data comes after a Reuters poll showed that business confidence was largely steady in March, but is expected to slide after the sales tax is raised to 8 percent from 5 percent on April 1.
Tepid export growth has been a concern for policymakers, who are counting on stronger shipments to help cushion any slide in domestic consumption after the sales tax rise.
Some market watchers, however, including a central bank board member, doubt there will be an early recovery in exports.
BOJ board member Takahide Kiuchi warned that exports could continue to disappoint and that consumer spending could weaken, but said he did not think additional policy easing would help the economy in the long-term.
Exports rose 9.8 percent in February from a year earlier, following a 9.5 percent gain in the previous month, as shipments of cars to China and Asia recovered from a Lunar New Year slowdown, Ministry of Finance (MOF) data showed.
The modest rise compared with a 12.4 percent gain expected by economists in a Reuters poll, with U.S.-bound shipments slowing sharply, due in part to a cold wave there. In terms of volume, exports increased 5.4 percent in February.
“Overall, exports remain sluggish and the situation is severe,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
“Considering that one cannot expect 4-5 percent growth in the United States and Chinese growth remains tepid, both of which will weigh on Asian economies and Japan’s exports. You cannot rely on such a rosy scenario that exports could offset the impact of a sales tax hike.”
Lack of export growth could compel the central bank to announce further monetary stimulus, while the government may resort to more fiscal stimulus to prop up the economy as soon as the summer, Minami said.
The central bank will ease policy again by July as prospects for higher inflation remain remote and the outlook for the economy weakens, a Reuters poll found.
At a policy review last week, the BOJ maintained its massive monetary stimulus and kept its upbeat view on the economy, although it downgraded its assessment for exports, saying that they have leveled off.
BOJ Governor Haruhiko Kuroda reiterated in a speech on Wednesday his confidence that the economy and consumer prices are on track, but exports continue to be a cause for concern.
Despite a sharp fall in the yen since late 2012, which has pushed up the cost of imports, there has not been a equivalent boost in exports, in part because of exporters’ reluctance to cut prices.
Kiuchi said he saw a high hurdle for additional quantitative easing as the risks to the economy from increasing government bond purchases would outweigh the benefits.
Kiuchi also said if the yen weakens further it could make imports too expensive and slow consumer spending, which would be a negative for the economy.
“I personally pay closer attention to downside risks,” Kiuchi, a pessimistic member of the BOJ board, said in a speech to business leaders in Otsu, western Japan.
“I am paying particular attention to developments in exports and consumption as downside risks to the economy.”
Imports grew 9.0 percent in the year to February, versus expectations for a 7.4 percent gain, due to firm demand for liquefied natural gas, electronics parts from China and cars from Germany.
That resulted in a trade gap of 800.3 billion yen ($7.90 billion), a record for the month of February, although it was well below January’s record trade gap of 2.79 trillion yen.
Poll’s Worsening Sentiment
Export weakness was not reflected in confidence at Japanese manufacturers, which held steady at plus 18 in March, while non-manufacturers’ mood edged up to a record high of plus 31 as consumers brought forward purchases to beat the sales tax rise, a Reuters poll found on Wednesday.
However, the monthly Reuters survey, which closely correlates with the Bank of Japan’s tankan, showed both sectors’ sentiment indexes are expected to slide to plus 12 and plus 14, respectively, in June.
A total of 255 firms responded to the Reuters poll of 400 big- and medium-sized firms conducted March 3-14. Indexes are calculated by subtracting the percentage of pessimistic responses from optimistic ones.
The BOJ will release its March quarter tankan on April 1.
Any weakness in the BOJ tankan would increase calls for additional stimulus from the BOJ, even though the central bank has said the economy should be able to weather the tax rise.
Policymakers and many private-sector economists expect the economy to slow temporarily in the April-June quarter after the tax rise, before rebounding in July-September. (Reuters)