Market Mover - BNP PARIBAS - Investment Services India

Japan: Exports Slow on End of Catch-Up• Japan’s trade account was in deficit for asixth straight month but the scale of the shortfallplunged sharply, as nominal exports surged inSeptember while nominal imports contracted.• Real exports, which have been on the mendsince May, rose 1.3% m/m but the pace ofincrease has dropped recently, reflecting the endof the post-disaster catch-up phase for mostproducts.• US-bound shipments fell 1.5%, while EUboundexports rose 2.3%. But exports to bothhave been losing steam since July, as demandhas weakened with fiscal/financial turmoilweighing on sentiment. • Exports to China rose 2.9% but the level isstill below normal, due largely to the slowdownof the Chinese economy. On this score, generalmachinery exports remain more than 24% belowtheir pre-disaster level, indicative of theweakness of investment demand.• Although real imports fell 2.8%, the firstsetback in six months, the tone remains firmthanks to yen appreciation, resurgent demandfrom normalised factory activity and briskdemand for fuel for thermal power generation.Trade account deficit continues for sixth straightmonthAccording to the MOF’s trade statistics forSeptember, Japan’s seasonally-adjusted tradeaccount remained in deficit for a sixth straight month,but the scale of the shortfall plunged sharply to justJPY 21.8bn from JPY 265.2bn in August, as nominalexports surged 2.0% m/m but nominal importscontracted 2.2%.Exports lose much steamAdjusted for exchange rate and price fluctuations,our calculations show real exports rose 1.3% m/m,for a second straight, albeit slower, gain (2.7% inAugust). Trend-wise, real exports have been on themend since May, thanks to production recoveringalongside the restoration of supply chains. For thequarter ending in September, real exports rose arobust 9.5% q/q after contracting 6.0% q/q in Q2(real imports rose 0.1% q/q in Q2 and 2.8% q/q inQ3). Even so, with the exception of transportequipment, where output is still being ramped up,production growth and exports have significantlymoderated recently, as activity has largely returned7,5007,0006,5006,0005,5005,0004,5004,000Chart 1: Real Exports (sa, JPY bn)totalTransport equipment (RHS)05 06 07 08 09 10 11Source: MOF, BOJ, BNP Paribas1,6001,5001,4001,3001,2001,1001,000900800700600Chart 2: Real Exports to China (sa, JPY bn)05 06 07 08 09 10 11Source: MOF, BOJ, BNP Paribas2,0001,8001,6001,4001,2001,000to normal (to the pre-disaster levels of February).Consequently, the main determinant of export growthfrom now on will be foreign demand, not domesticsupply capability. With developed and emergingeconomies showing signs of losing momentum,Japan’s exports look likely to shift into a lower gearor even stall.Except for transport equipment, exports aregenerally weakLooking at the breakdown of real exports by productcategory, the sector contributing most to real exportgrowth in September was again transport equipmentat roughly 30% of total exports: shipments rose 4.3%m/m (12.1% in August). Exports of this key productplunged in March-April as the disaster threwautomotive supply chains into chaos, but reboundedsharply from May as damaged plants were broughtback online and electricity rationing ended. As ofSeptember, the index level for this product was14.3% higher than in pre-quake February.800600Ryutaro Kono/ Azusa Kato 27 October 2011Market Mover19www.GlobalMarkets.bnpparibas.com