Japan's exports slump again on weak external demand, puts BOJ on notice

* Feb exports -1.2 pct yr/yr vs forecast -0.9 pct
* Exports in volume -0.6 pct yr/yr, down four mths
* Shipments to Asia fall, modest rebound in China-bound
* Net exports seen as drag on Q1 GDP and rest of 2019

(Adds analyst quote, detail, context on economy, policy)
By Tetsushi Kajimoto
TOKYO, March 18 (Reuters) - Japan's exports fell for a third
month in February in a sign of growing strain on the
trade-reliant economy, suggesting the central bank might be
forced to offer more stimulus eventually to temper the effects
of slowing external demand and trade frictions.
Slowing global growth, the Sino-U.S. trade war and
complications over Britain's exit from the European Union have
already forced many policymakers to shift to an easing stance
over recent months.
Japan is in a similar situation to much of the rest of the
world, where factories have slammed on the brakes and business
confidence has plummeted in the wake of rising global economic
Ministry of Finance data showed on Monday exports fell 1.2
percent year-on-year in February, more than a 0.9 percent
decrease expected by economists in a Reuters poll.
It followed a sharp 8.4 percent year-on-year drop in
January, marking a third straight month of falls due to drops in
shipments of cars, steel and semiconductor production equipment.
"Exports to advanced nations like the United States and
Europe still held firm, but China- and Asia-bound shipments were
clearly sluggish," said Takeshi Minami, chief economist at
Norinchukin Research Institute.
"Exports will remain in a declining trend for the time
being, which could curb capital spending and wages. Domestic
economy will face a severe situation ahead of October's sales
tax hike."
The trade data comes on top of a recent batch of weak
indicators, such as factory output and a key gauge of capital
spending, which have raised worries that Japan's record run of
postwar growth may come to an end.
Some analysts say a recession cannot be ruled out.
The Bank of Japan last week cut its view on exports and
output, while keeping policy unchanged. Yet, extended weakness
in exports could put it under pressure to deliver more easing,
especially as inflation remains well off its 2 percent target
and pressure on businesses and consumers continues to rise.
In the post-policy press conference last week, BOJ Governor
Haruhiko Kuroda acknowledged the challenges the economy faced
but gave no indication there would be any additional
But Kuroda may have to change tack in the face of a run of
weak economic indicators.
Many in the BOJ expect Japan's economy to emerge from the
current soft patch in the second half of this year, assuming
China's stimulus plans can revive demand there.
The biggest worry among BOJ policymakers is that weakening
exports and output will hurt corporate sentiment, prompting
firms to delay capital expenditure and wage hikes.

The trade war between the United States and China -
Japan's largest export markets - has already curbed global
Monday's trade data showed exports to China, Japan's biggest
trading partner, rose 5.5 percent year-on-year on shipments of
semiconductor production equipment and cars, rebounding from a
17.4 percent drop in January.
However, overall trade to the Asian giant remained weak, as
even after averaging effects of the Lunar New Year holiday,
China-bound shipments declined 6.3 percent in the
January-February period from a year earlier.
Seasonally-adjusted overall trade values rose 6.7 percent
month-on-month in February, the strongest rise in two years.
Export volumes fell 0.6 percent in the year to February after
the previous month's 9.0 percent decline.
"Shifts in the timing of Chinese New Year partly explain the
sharp swings in trade volumes at the start of the year so the
recent strength in export volumes may unwind before long," said
Marcel Thieliant, senior Japan economist at Capital Economics.
"We still think that net trade will remain a drag on GDP
growth both in the first quarter and throughout 2019."
Japan's shipments to Asia, which account for more than half
of overall exports, fell 1.8 percent, down for a fourth straight
U.S.-bound exports rose 2.0 percent, but imports from the
United States grew 4.9 percent, resulting in Japan's trade
surplus with the country declining 0.9 percent year-on-year to
624.9 billion yen ($5.60 billion) in February.
Yet, Japan's still-large surplus with the United States
raises concerns among Japanese policymakers and auto exporters
that Washington may impose hefty duties on its imports.
Imports of Japanese cars make up about two-thirds of Japan's
$69 billion annual trade surplus with the United States, making
Tokyo and Beijing targets of criticism by Trump.
In February, Japanese auto exports to the United States rose
just 0.5 percent year-on-year to 152,198 units in February, with
the value of shipments down 6.8 percent.

($1 = 111.5400 yen)

(Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher &
Shri Navaratnam)

First Published: 2019-03-18 01:53:59
Updated 2019-03-18 05:31:12

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