Japan export gains cool while import bill rockets on fuel costs

Japan’s export gains from a year earlier showed further signs of cooling in January as the omicron variant spread globally, while imports continued to show the higher cost pressures faced by companies and consumers. 

The value of Japan’s overseas shipments increased 9.6% from a year earlier, compared with a 17.5% increase the previous month, as export jumps in steel and chip components eased back and auto shipments fell, finance ministry data showed Thursday. 

The increase was weaker than all forecasts by economists in a Bloomberg survey. The consensus estimate was for a gain of 17.1%. On a seasonally adjusted basis, exports edged up just 0.1% from December. 

Imports, meanwhile, surged 39.6% in January to record a double-digit gain for the 10th straight month, as higher energy costs and a weaker yen boosted the value of inbound shipments. The value of fuel imports jumped more than 80%.

The slowdown in export gains adds to signs that domestic factory output is taking a hit from global supply snarls exacerbated by the spread of omicron.

“Japan’s production had to be adjusted due to the omicron so that’s probably a key reason for the slowdown in exports,” said Koya Miyamae, senior economist at SMBC Nikko Securities. 

While the spread of the variant seems to have peaked in Japan, the government is sticking with its cautious stance and has already extended quasi-emergency measures in Tokyo and other places into early March. 

In an indication of persisting supply-side issues, Toyota Motor Corp. recently cut its output goal for the fiscal year ending March 31 to 8.5 million vehicles from a previous target of 9 million due to disruptions from Covid and chip shortages. Japan’s car exports in January were down 1% from a year earlier.

The overall value of shipments to China also fell 5.4%, for the first drop since the summer of 2020, an indication of the slowdown in Japan’s biggest export market, though January figures typically suffer distortions from the Lunar New Year holidays.

The continued surge in imports, meanwhile, will continue to put pressure on the government to address rocketing fuel bills.

“The level of increase in imports is almost shocking,” Miyamae said. “It’s the value rising not the volume, indicating that it’s due to rising commodity prices rather than robust domestic demand.”

The government has been trying to ease the burden of higher gasoline prices on consumers with subsidies. Recent weakness in the yen has also contributed to the rise in import costs.

What Bloomberg Economics Says…

“Looking ahead, we expect exports to recover in February as falling Covid-19 cases in many overseas markets open the way for stronger external demand.”

—Yuki Masujima, economist

Bank of Japan Governor Haruhiko Kuroda has maintained his stance that the recent yen softness is positive for the overall economy. This week, he downplayed the degree to which the weaker currency has boosted import prices. 

Looking ahead, the trend in trade could have implications for Prime Minister Fumio Kishida ahead of a national election in the early summer as he tries to show he has found a better balance between managing the economy and the virus than his predecessor.

Higher fuel costs could drive voter dissatisfaction, while exports hold the key to whether the economy can avoid falling back into a contraction in the current quarter with the virus containment measures hitting consumption.