September 17, 2015, 18:00 JST

Net export was probably a drag to growth in July-September

Japanese exports continued to disappoint in August. It grew by 3.1% year on year, measured in yen, but the increase was merely due to the large depreciation of the yen. In quantity terms, Japanese exports have in fact fallen, down 4.2% year on year, the largest drop since June 2013.

By areas, exports to US and to China have contracted by 7.7% and by 9.2% year on year in quantity terms. The severe declines in Japan's export to US and to China are concerned, not just for Japanese exporters, but also for the global economy. They suggest that the US economy may be starting to slow and the Chinese economy continuing to weaken despite recent simulative measures taken by the Chinese government.

After a seasonal adjustment, the real exports from Japan contracted marginally in August. The real exports had a good run in June-July, but the medium term trend seems to be still pointing downward. The average level in July-August was basically at par when compared with the average level in April-June. Assuming no major changes in September, that means no contribution from exports to real GDP growth in the July-September quarter.      

On the imports side, imports measured in yen were down by 3.1% year on year. The decline in energy prices is helping to reduce Japan's import bill. 

After a seasonal adjustment, the growth in real imports was flat between August and July. When we compare the average level of imports in July-August to the average in April-June, the real imports still seem to have grown moderately, by 1.2% between two periods. 

With real exports staying flat between two periods, the increase in real imports means that the import has sapped away some of the domestic output growth. We estimate the negative contribution to growth to be around 0.2% point. That is not much, but it does raise the possibility that Japan may have suffered a negative growth again in the July-September quarter. The quarter has not even ended and we still think that the chances are Japan has mildly positive growth in the July-September quarter. However, a negative growth in July-September may not necessarily be a bad news for Japan if having two consecutive quarters of negative growth could force Japan’s policy makers to rethink their growth strategy.