Japan: Exports and Imports Drop in May

Japan's annual exports tumbled in May, declining for the first time in 15 months, following lower shipments to the US and to Asia, data showed on 18 June.

The news threatens to hit the world's third-largest economy hard at a time when domestic consumption is being hammered by April's national sales tax hike.

Exports fell 2.7% year-on-year in May, the Ministry of Finance (MOF) data showed.

The reading compared with a 1.2% drop forecast by economists and followed a 5.1% jump in April. On a seasonally adjusted basis, exports fell 1.2% in May from the preceding month.

MOF data showed exports to the US, Japan's biggest export market, dropped 2.8%, the first drop in 17 months led by lower car shipments.

Exports to Asia, which accounts for more than 50% of Japan's exports, fell 3.4% in May from a year ago, the first annual decline in 15 months.

Exports to China rose 0.4% on the year, however.

Imports

Weak domestic consumption weighed down on imports, which dropped 3.6% on the year in May. Economists had forecast a 1.7% increase.

However, lower imports helped Japan narrow its trade deficit to 909bn yen ($8.9bn, £5.2bn, €6.6bn) in May, from a year ago.

RBC Capital Markets said in a note to clients: "The may trade deficit came in better than expected at JPY0.9tn (consensus JPY1.2tn)...

"In volume terms exports are even weaker (-3.4% y/y) and continue to show no gains on the back of previous JPY weakness. Minutes of the May [Bank of Japan] meeting [released on 18 June] contained nothing new in the policy debate."

Sales Tax Revision

Prime Minister Shinzo Abe will decide later this year about raising the national sales tax, from 8% at present, to 10% effective October 2015.

Japanese consumer prices struck a 23-year high in April, in the wake of the 1 April sales tax hike, a positive development in Tokyo's near two-decade-long battle against deflation.

But higher prices resulted in a bigger-than-expected drop in consumer spending and a higher-than-expected slowdown in factory activity that month, raising concerns about the pace of economic recovery of the Japanese economy.

Japan raised the national sales tax rate from 5% to 8% in April, the first increase in 17 years, to curb its huge public debt and battle falling prices.