Implications of export weakness in Japan – RBS

FXStreet (Łódź) - Junko Nishioka and Long Hanhua Wang, economists at RBS, comment on the possible consequences of the continuing weakness of Japanese exports.

Key quotes

“Exports have been sluggish since the Great East Japan Earthquake in March 2011, but the weakness has become more apparent over the past few months.”

“We were anticipating that capital good exports, a core strength for Japan, would drive a recovery as capital good shipments increased (as reflected in production data) and as external demand picked up (as shown in machinery orders data). However, export value and volume continues to miss year-ago levels.”

“We attribute the export slowdown to 1) weaker external demand, 2) a shift to local production, and 3) reduced competitiveness.”

“We saw lacklustre exports, despite a rebound by overseas demand, as an outcome of the shift to local production , but local output expansion has not been substituting for the export decline to ASEAN countries recently.”

“The impact of reduced competitiveness appears to be growing. We think Japan's declining competitiveness in Asia, amid the continuation of a major shift by Japanese companies in Asia to procure and produce locally for local sales, could hinder earnings expansion and profitability for Japanese companies."

“This would lead to 1) even further reliance on the US, and 2) renewed risk to a stable current-account surplus.”