Japan: Exports to US particularly weak, but some impact from cold snap - Nomura

Analysts at Nomura note that according to Ministry of Finance trade statistics, nominal exports in January 2018 were up 12.2% y-y, above the consensus (Bloomberg survey median) forecast for a rise of 9.4%, while nominal imports were up 7.9% (up 7.7%) for Japanese economy.

Key Quotes

“The original series trade balance showed a ¥943.4bn deficit, above the consensus estimate of a ¥1,003.6bn deficit. The seasonally adjusted trade surplus was ¥373.3bn.”

“Lunar New Year boosted exports in Asia, but overall real exports weak

• Based on the BOJ's export and import price data, we calculate that real exports in January 2018 June fell 0.6% m-m (seasonally adjusted by Nomura). January exports were 1.4% lower than the monthly average for Oct-Dec 2017, showing a downturn following 1.7% q-q growth in Oct-Dec.
• January and February monthly export trends tend to be skewed by the impact of the Lunar New Year holidays in Asia. This year, the Lunar New Year fell on 16 February and, based on the pattern seen in previous years, we believe this will result in a positive impact on Japanese exports in January and a negative impact on imports (we estimate a 1.6ppt positive m-m impact on overall exports and a 2.2ppt negative impact on imports in January).”

“Exports to US particularly weak, but some impact from cold snap

• January export volume to Asia was 2.2% higher than the monthly average for Oct-Dec, export volume to the EU was 1.0% higher, and export volume to the US was 10.0% lower. Exports slowed or turned downward overall, with particularly pronounced weakness in exports to the US. We had expected exports to Asia to begin to slow in 2018. As noted above, January 2018 exports were pushed up by factors related to the Lunar New Year, so we think the slowdown in exports to Asia may prove more severe than previously expected moving forward.
• With no signs pointing to any collapse in the US economy, we find it somewhat difficult to explain the weakness of exports to the US. One possible interpretation may be that cold weather in the US in January had a negative impact on US imports. If this is the case, weak exports to the US should prove to be a temporary phenomenon. We reiterate our view that Japanese exports will remain firm at least until around the summer of 2018, mainly owing to growth in US domestic demand resulting from growth in government spending. While we view a slowdown in exports in Jan-Mar as increasingly likely, and while we note the risk of a heavier-than-previously-expected shortfall in exports to Asia, we think exports should strengthen again starting in early spring.”