Japan's export growth pegged to rise to 17.4%

Import to remain stable.

According to DBS, trade data for October are due tomorrow. Based on the preliminary numbers for the first 20 days, export growth is forecasted to rise to 17.4% YoY (vs. 11.5% in Sep), import growth would remain stable at 17.0% (vs.16.5%).

Thanks to the cooling of import growth helped by the recent fall in global oil prices, trade deficit is expected to narrow to JPY 628bn from JPY 934bn.

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The latest development is that the USD/JPY rate rose further to cross 100 in the past few days due to recovering risk appetite in the global markets, driven by rising expectations about a delay in US QE tapering and stronger confidence about China’s reform success.

Thanks to the JPY depreciation, optimism about better earnings outlook of Japanese exporters has increased, reflected in the rebound of the Nikkei.

While a weaker yen helps corporate earnings, there is little evidence that the yen’s depreciation has been effective in boosting Japan’s trade competitiveness or fixing the trade deficit problem.

Nominal exports have increased 16% over the past ten months between Nov12 and Sep13. Real export volumes, however, rose only about 3% during the same period.

Moreover, the occupation rates of Japan’s key products in overseas markets failed to improve. In the US’s import market, the share of Japanese electronics and automobiles products remained unchanged at 6% and 20% respectively in the first nine months this year, compared to 6% and 21% last year.

Japan’s occupation rates in China’s import markets of electronics and automobiles stood at 9% and 15% respectively in Jan-Sep13, even lower than 12% and 18% in 2012.

In order to boost export competitiveness, Japanese exporters will need to spend the profits (earned from yen depreciation) on technology advancement and innovation.

Wage hikes led by the export-oriented enterprises are also required, so as to cover the rise in imported inflation caused by a cheaper yen.

If the recovery in real exports remains feeble, trade deficit is persistently large and inflation continues to outpace wage growth, yen weakness may cause domestic criticism and the authorities will need to rethink the benefits and costs of pushing for a weak yen policy.

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