Japan export beat lifts odds economy resumed growth last quarter

Japan’s exports rose at the fastest clip in a year last month, boosting the likelihood of the economy returning to growth in the October-December quarter.

Exports rose 9.8% in December from a year earlier, the biggest jump in a year and reversing from a 0.2% dip in the previous month, the finance ministry reported Wednesday. Economists had forecast a 9.2% increase. Shipments to the US gained at a double-digit clip and those to China rose for the first time in 13 months. 

Imports dropped 6.8%, compared with economists’ forecast of a 5.4% decrease. The trade balance flipped to a surplus of ¥62.1 billion ($419 million) from a revised deficit of ¥780.4 billion in the previous month. Declines in imports of coal and liquefied natural gas pulled overall imports lower.

The figures indicate external demand may exert less of a drag on the economy in the fourth quarter, helping it rebound after gross domestic product shrank at the sharpest pace since the height of the pandemic in the July-September period. 

A return to growth would make it easier for the Bank of Japan to put an end to its negative rate policy, a move two-thirds of economists surveyed by Bloomberg expect to see by April. 

“Exports are likely to have a better-than-expected impact on GDP in the fourth quarter,” said Yuichi Kodama, economist at Meiji Yasuda Research Institute. “The economy will likely return to growth as companies investment plans are strong and consumption seems to have rebounded.”

In its latest quarterly outlook report, the BOJ listed developments in overseas economic activity and prices as among factors creating high uncertainties for Japan’s economic prospects, and said exports and production “are projected to be more or less flat for the time being.”

What Bloomberg Economics Says...

“December’s trade data was strong and should support fourth quarter GDP. Brisk exports of cars suggests that dealers abroad are still rebuilding inventories.”

— Taro Kimura, economist

Wednesday’s data underscored the relative strength of demand in the US, with exports to the US rising 20.4% on year, led by cars, while those to Europe increased 10.3% and shipments to China gained 9.6%, with chip-making gear the main driver.

China’s growth may slow to 4.5% this year as the slumping property sector continues to exert a drag on activity, according to Bloomberg Economics, with consensus seeing growth in the US decelerating to 1.3% and inching higher in the euro area to 0.6%.

“In the longer term, it’s hard to expect exports to be a main driver for the Japanese economy because the US is likely to slow down due to the impacts of interest rate hikes and China’s growth speed will decelerate,” Kodama said.

For the full year, exports to the US surpassed those to China for the first time since 2019. Overall annual exports exceeded ¥100 trillion for the first time ever, a ministry official said, while the full-year deficit narrowed by more than 50%.

The World Trade Organization has forecast that growth in merchandise trade will accelerate to 3.3% this year from 0.8% in 2023, while the World Bank projects a 2.3% gain in volume, versus 0.2%.

Inbound tourism, which is categorized as a service export, also continued to grow in December, with the number of visitors setting a record for that month, as inflows recover from the pandemic. The BOJ said in its January outlook report that these numbers are expected to keep increasing.

The yen’s weakness has helped spur the tourism rush. Japan’s currency remained weaker last month compared with a year earlier even as it pared losses, with the exchange rate averaging 146.92 per dollar, down 6.5% year on year, the ministry said. The yen has weakened a bit more in 2024 and was worth 148.17 to the dollar early Wednesday.