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Another key product, electrical machinery alsocontributed to overall export growth, with shipmentsreviving 1.3% after contracting 1.1% in August. Butthe level remains 3.9% below pre-disaster Februaryand is likely to stay weak as the global IT/digitalsector adjusts to slowing private demand in Chinaand stalling consumer spending in the US andEurope.On the downside, general machinery exports fell0.6% (–2.9% in August), marking a third straightdecline. Having suffered relatively little damagecompared to other sectors, general machineryexports stopped falling in April and by June the levelwas already 1.3% higher than in February. But thedeepening slowdown in the global manufacturingcycle has caused shipments of this key exportproduct to turn down. Exports of chemical productsalso remain weak, falling 0.2% (–0.1% in August).US-bound exports: First decline in five monthsA geographical breakdown of the September tradereport (seasonally adjusted, real basis, ourestimates) has US-bound exports turning sour for thefirst time in five months with a 1.5% m/m decline(4.1% in August). Even so, exports for Q3 overall areup a huge 20.3% q/q (compared with -5.4% q/q in Q1and -11.4% q/q in Q2), with quarterly gains beingposted by most products, except chemical productsand nonferrous metals. In addition to pronouncedquarterly recoveries by electrical machinery (12.6%q/q in Q3 from -9.8% q/q in Q2) and generalmachinery (8.3% from -3.9% in Q2), shipments oftransport equipment surged a phenomenal 56.6%(-14.1% in Q1, -25.1% in Q2), reflecting inventoryreplenishment. With monthly trade figures from Julyshowing exports to the US have lost momentum, itseems that the catch-up phase following the 11March disaster is over for most products, excepttransport equipment. With financial turmoil furtherundermining sentiment in American households andbusinesses, this year’s Christmas sales could drop,leading to a less bright outlook for Japanese exports.EU-bound exports: first decline in five monthsEU-bound shipments rose 2.3% m/m in September(0.0% in August) and grew 13.4% q/q in Q3 overall(-3.9% q/q in Q2). Products contributing to thequarterly gain include transport equipment (43.5%from -24.2% in Q2), electrical machinery (8.5% from0.0% in Q2), and general machinery (9.1%from -2.5% in Q2). But like shipments to the US, EUboundexports have lost momentum with the end ofthe post-disaster catch-up process. Making mattersworse, the eurozone’s deepening sovereign debtwoes have shaken the financial markets andsubstantially eroded growth expectations. It wouldnot be unexpected for exports to start trending lower.Asia-bound exports: Shipments to China stillbeing adjustedExports to Asia rose 2.5% m/m in September afterfalling 0.5% in August, and shipments in Q3 overallare up 5.8% q/q after plunging 8.4% q/q in Q2.Exports to China, Japan’s largest trading partner,rose 2.9% m/m in September after dropping 1.6% inAugust, and exports in Q3 overall recovered 8.6%q/q after plummeting 14.5% q/q in Q2. But comparedto pre-disaster January-February (we take a twomonthaverage because the February level isboosted by the Chinese New Year effect), exports toAsia and exports to China are still down 4.7% and10.3%, respectively. Trend-wise, exports to Chinahave been basically flat since July, a sluggishnessthat reflects the slowdown in the Chinese economythat began before Japan’s March disaster.Regarding products in Q3, China-bound shipmentsof transport equipment soared 63.4% q/q (-37.0% q/qin Q2) and electrical machinery shipments rose 8.8%q/q (-14.3% in Q2). While transport equipmentshipments have roughly returned to the normalJanuary-February average, electrical machineryshipments are still down by more than 10%. Generalmachinery exports to China posted a second straightquarterly decline (-10.4% q/q in Q2, -7.5% q/q in Q3):24.4% below normal, a grim indication of theweakness of Chinese domestic demand. Japanesedata for machine tool orders shows demand fromChina has yet to stabilise and is still trending lowerafter cresting at the start of the year.Real imports remain firm, as strong yen takesrootFinally turning to imports, real imports fell 2.8% m/m(2.5% in August), for the first setback in six months.Even so, real imports rose 2.8% q/q in Q3 (0.1% q/qin Q2), for a third straight quarterly advance. Thelevel as of September is 2.8% higher than predisasterFebruary. Such strong imports reflect threethings: the effect of yen appreciation (includingreverse imports by some companies), resurgentdemand for materials now that production hasrecovered and brisk demand for mineral fuel forthermal power generation, reflecting reduceddependence on nuclear power. In terms of products,mineral fuel imports rose 4.2% q/q (-3.4% q/q in Q2),transport equipment shipments surged 9.0% (-3.4%in Q2), electrical machinery shipments increased3.4% (-4.0% in Q2) and general machinery importspicked up the pace with 6.7% gains (2.0% in Q2).Ryutaro Kono/ Azusa Kato 27 October 2011Market Mover20www.GlobalMarkets.bnpparibas.com