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Led by a weaker yen, Japanese exports last year reached their highest level since 1979, according to data released by Japan’s Ministry of Finance today. The country‘s total exports amounted to 100.88 tn yen ($680 bn) in 2023, depicting a 2.8% rise from the preceding year.
The export growth was underpinned by the auto and construction sectors, wherein car shipments surged 32.7% over the year. At the same time, construction and mining machinery exports saw a 16.2% year-on-year growth.
Meanwhile, monthly data reveals a 9.8% annual surge in Japanese exports for December 2023, where in China-bound shipments rose for the first time in 13 months. Exports to China climbed 9.6% over the year to 1.77 tn yen ($12 bn) led by chip manufacturing equipment and cars. However, the US emerged as the top export destination during this period.
All in all, Japan’s trade deficit reduced by over 50% year-on-year to 9.29 tn yen ($63 bn) in 2023. For 2024, Nomura stays positive on Japan’s exports of chip equipments. “In exports, the (Japan’s) semiconductor production equipment sector will benefit from the bottoming of the inventory cycle and peaking US interest rates,” writes Kyohei Morita, Chief Economist at Nomura.
Investors concerned over stronger yen and earthquake loss
Despite Japanese exports hitting unprecedented highs, underlying challenges persist. Analysts highlight that the depreciation of the yen was a crucial factor driving the surge in exports last year. However, there is potential for this advantage to diminish. The recent hint by the Bank of Japan’s (BoJ) Governor Kazuo Ueda about a possible future rate hike has fueled speculation of a stronger yen.
“The BoJ wants a stronger currency and will now be the only G10 central bank to hike,” says Min Joo Kang, Senior Economist for South Korea and Japan at ING. However, Kang doesn’t see any policy changes until June 2024.
Even Nomura feels that the weak yen could correct itself this year. “The downward pressure on the currency caused by Japan’s trade deficit and a dovish BoJ have already peaked this year. A rapid normalisation of policy by BoJ could make the yen stronger against the US dollar,” Yujiro Goto, Head of FX Strategy for Japan at Nomura, explained last month.
Furthermore, concerns about the future of Japanese exports have intensified due to vulnerabilities in global trade and uncertainties surrounding the economic repercussions of the recent earthquake in Japan. According to local reports, the earthquake disrupted production at the chip equipment and electronic manufacturing plants of companies like Toshiba, Murata Manufacturing, Kokusai Electric, and GlobalWafers earlier this month.
BoJ stays cautiously optimistic about the economy
Addressing concerns, the BoJ has opted for a cautiously optimistic stance. “Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialisation of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies,” said the central bank.
Besides, the BoJ expects the country’s corporate exports to stay flat in the near term, while the service exports related to inbound tourism are projected to rise.
