Japan: Exports remain on uptrend, but risk of downswing in US domestic demand – Nomura

The research team at Nomura notes that according to Ministry of Finance trade statistics, nominal exports in March 2017 were up 12.0% y-y, much higher than the consensus (Bloomberg survey median) forecast for growth of 6.2%.

Key Quotes

“As nominal exports had risen 5.4% y-y in the first 20 days of the month, we think exports were pushed up significantly by an increase in the last 11 days of the month. Nominal imports rose 15.8% m-m, above the market consensus forecast of 10.0% growth. As a result, the trade surplus (original series) was ¥614.7bn, above the consensus forecast of a surplus of ¥608.0bn. On a seasonally adjusted basis, March saw a 17th straight month of trade surplus, with a surplus of ¥177.2bn.” 

Real exports still on the increase in 2017

Based on the BOJ's export and import price data, we calculate that real exports in March fell 1.1% m-m (seasonally adjusted by Nomura). For the Jan-Mar quarter, however, real exports rose 2.0% q-q, continuing the uptrend seen in the Oct-Dec 2016 quarter (+0.7% q-q). We therefore conclude that the uptrend in real exports since 2016 H2 is ongoing in 2017.”

Exports to Asia solid on cyclical demand increase

By region, weaker real exports in Jan-Mar to the US (-1.7% q-q) and to Russia (-8.5%) were outweighed by increases to a wide range of countries and regions including China (+4.4%), Asia ex China (+2.9%), the EU (+1.8%), and the Middle East (+0.6%). For Asia in particular, exports were brisk for general machinery (+6.9%) and electrical equipment (+5.0%), and we think this may be attributable to a cyclical demand increase for construction machinery and smartphones in Asia. We expect this Asian cyclical demand increase to persist at least through 2017 H1, and we forecast a rise in Japanese exports alongside this increase.”

Caution on possible weakening in US domestic demand

We see some grounds for concern in weakness in exports of transport equipment, which accounts for a sizable portion of the value of exports from Japan. US domestic automobile sales volume has been weak in 2017 thus far, and real exports of automobiles from Japan to the US fell 8.9% q-q in Jan-Mar. A slump in demand in the US, which has a substantial influence on Japanese exports as a final demand market, would raise concerns over the sustainability of the increase in Japanese exports. US macroeconomic indicators have been solid so far, and we think a collapse in the US economy is unlikely in the near future, but we intend to closely monitor any risk of future downturns.”