January 26, 2015, 12:00 JST

Japanese manufacturers enjoying double digits growth in exports

The news from the December custom cleared trade data was encouraging for Japan. Japan's export was up 12.9% year on year, the highest growth rate for the past 12 months and beating the prior market expectation for a 11% growth. The growth in imports was suppressed to mere 1.9% year on year due to the decline energy prices. As a result, Japan's trade deficit shrunk to 0.66 trillion yen in December 2014, down from 1.3 trillion yen a year ago.

 Source: MoF, JMA.

Granted, most of the 12.9% growth in exports are nominal phenomenon, stemming from the yen depreciation. Measured in volume terms, exports only grew by 3.9% year on year. After a seasonal adjustment, export volume index has hardly expanded in the last 2 years.

 Source: MoF, JMA.

However, we still treat the news as a good news for Japan. Export volume may not be expanding much, but exporters are certainly receiving much more yen, fattening up their profit margin in yen terms. Higher profits for Japanese exporters raise their share price and they can afford to raise wage for their employees. The latest wage statistics show that wage is rising at 1.5% year on year clip for manufacturing workers. It is just a matter of time that the wage growth would spill over to other industries. 

 Source: MoF, JMA.

The rising profitability of exports is also encouraging Japanese manufacturers to boost their capacity inside Japan. According to the BoJ December Tankan survey, Japanese manufacturers are planning to expand their capital investment by 15.6% year on year in the second half of FY2014, up from 8.4% in the first half. The expansion in the private capital expenditure was slow in coming, but we can now see them coming through the pipeline.

 Source: Cabinet Office, JMA