Japan: July exports slightly weaker than consensus – Nomura

Research Team at Nomura, notes that according to Ministry of Finance trade statistics, nominal exports in July 2016 were down 14.0% y-y, slightly worse than the consensus (Bloomberg survey median) forecast for a decline of 13.7%.

Key Quotes

“Nominal imports fell 24.7% y-y, also underperforming the consensus forecast of a 20.0% decline. As a result, the trade surplus (original series) was ¥513.5bn, well above the consensus forecast of a surplus of ¥273.2bn. On a seasonally adjusted basis, July saw a ninth straight monthly trade surplus, of ¥317.6bn.

Softish start to second half of year for exports

Based on the BOJ's export and import price data, we calculate that real exports declined 3.5% m-m in July, after rising 4.9% in June. July exports also were down 0.4% from the Apr–Jun average, so taken as a whole we think the July numbers could be described as slightly weak.

Exports weak overall, but with positive signs for some goods and regions

The export breakdown, though, was not that bad. When we compare July real exports with Apr-Jun averages, the results vary between categories of goods, with exports of transportation equipment and scientific/optical instruments falling 2.8% and 2.7%, respectively, while exports were up 1.7% for chemicals, 4.7% for metal products, 0.9% for general machinery, and 2.1% for electrical machinery. Regionally speaking, general machinery exports to the US decreased, as did automobile exports to Asia ex-China. Exports to Europe lacked momentum, remaining largely level with Apr–Jun, but other categories of exports were generally higher, and we see a preponderance of positive news overall.

Thus July exports were on the weak side overall, but were not bad in terms of content. This kind of phenomenon sometimes occurs when seasonal adjustment of data series is performed separately for total exports and for exports in individual categories, and in such cases it can be hard to say which provides a more accurate picture. However, given the marked rebound in manufacturing in the US and Asia, it is hard to envision a situation where Japan alone does not experience growth in exports. In view of July's mm deterioration in the new export orders index within the Japanese manufacturing PMI, we would not go so far as to say that July exports actually were upbeat. That said, we see no reason to be unduly pessimistic over the future outlook.

Maintaining our view that exports will turn up

In our view, the softening in Japanese exports reflects the impact of sluggish growth in exports to the US, which accounts for a large export share on a value-added basis and which saw sluggish economic growth of 1.2% q-q annualized in Apr-Jun following growth of 0.8% in Jan-Mar. However, we forecast that growth in the US will pick up to around 2.0% q-q annualized from here, and we expect Japan's exports to regain momentum in response.”