Japan’s July exports slip for 8th month

TOKYO (Reuters) — Japan’s exports slipped for an eighth month in July, while manufacturers’ confidence turned negative for the first time in over six years as China-bound sales slumped again in a fresh sign the Sino-U.S. trade war could tip the economy into recession.

The gloomy data underscored the challenge for Japanese policymakers worried that prolonged weakness in external demand will drive a sharp economic downturn at home.

Exports in July fell 1.6 percent from a year earlier, Ministry of Finance data showed on Monday, dragged down by China-bound shipments of car parts and semiconductor production equipment. That compared with a 2.2 percent decrease expected by economists.

It marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016. Yet there was some glimmer of hope for shippers, as export volume rose 1.5 percent in July year-onyear — the first positive reading in nine months.

Separately, the Reuters Tankan survey showed Japanese manufacturers’ business confidence turned negative for the first time since April 2013 in August.

“My impression is that the year-on-year rise in the export volume was slightly stronger than expected. That’s a positive as falling exports is the biggest issue faced by the Japanese economy,” said Taro Saito, executive research fellow at NLI Research Institute.

“But it’ll be hard for exports to recover going forward, since there’s no solution in sight for the U.S.-China trade war, and the global economy and manufacturing remain weak.”

Indeed, the negative reading underlined the darkening outlook for the Japanese economy even as the most recent quarter showed a welcome improvement. Gross domestic product grew faster than expected in April-June to mark the third straight quarter of expansion, as robust domestic consumption and business investment offset the negative contribution from external demand.

Though service-sector activity remains firm in Japan, simmering international trade tensions have caused manufacturers’ sentiment to worsen.

Analysts at Capital Economics said they expect imports will continue to outpace exports as consumers are seen bringing forward demand ahead of a planned sales tax hike in October.

“The upshot is that net trade may remain a drag on growth in the third quarter,” the analysts wrote in a note to clients.

Recession fear

Anxiety about a global slump rose to fever pitch recently after an inversion in the U.S. Treasury yield curve implied a growing risk of a recession there, and data showed Germany’s economy was in contraction and China’s was worsening.

Exports to China, Japan’s biggest trading partner, shrank 9.3 percent year-on-year in July, down for a fifth month. The contraction was led by sizable declines of 31.5 percent in semiconductor production equipment, 35 percent in car parts and 19 percent in electronics parts, the data showed.

Manufacturers’ exports to China of semiconductors and electronics parts slumped as a rush of demand ahead of a U.S. ban on federal purchases of telecommunication equipment from Huawei Technologies wound down, analysts said.

Shipments to Asia, which account for more than half of Japan’s overall exports, declined 8.3 percent in the year to July.