For the first time in over two and a half years, Japan’s exports declined in July due to weaker demand for chip-making equipment and light oil, highlighting worries about a possible global recession as important markets like China deteriorated.

According to Ministry of Finance (MOF) figures released on Thursday, Japanese exports decreased by 0.3% in July compared to the 0.8% decline predicted by economists in a Reuters survey. It came after a 1.5% increase in the prior month.

Various data from the Cabinet Office revealed that a crucial indicator of capital expenditures increased in June. Manufacturers are preparing for a decline in core orders for the current quarter, partially as a result of the impact of sluggish offshore demand.

Overall, the data showed that Japan’s export engine, which supported growth in the second quarter GDP mostly through vehicle shipments and foreign tourism, was fragile.

Japanese officials are relying on exports to support the No. 3 economy in the world and make up for the slump in private spending caused by more widespread price increases.

Concerns about the prognosis have been exacerbated, however, by the threat of a more severe global slowdown and the faltering growth in its largest market, China.

The World Bank has issued a warning that in 2024, the effects of increased interest rates and tighter credit will be more detrimental to global economy.

Separate statistics earlier showed sustained decreases in Singapore’s exports, viewed as a barometer of overseas demand as trade flows dwarf the city-state’s economy, adding weight to fears about global growth.

“China remains weak and I don’t see demand from Europe and America to accelerate further,” said Takeshi Minami, chief economist at Norinchukin Research institute, adding that Japan’s economy may suffer a downturn in the current quarter.

Following a 10.9% dip in June, Japan’s exports to China, its biggest trading partner, decreased 13.4% year over year in July due to decreases in shipments of autos, stainless steel, and IC chips.

Following an increase of 11.7% the month before, shipments to the United States, Japan’s main ally, increased by 13.5% year over year last month to reach the highest value ever recorded. Shipments of electric vehicles and auto parts led the increase.

“The Bank of Japan must be aware of downside risks from the global economy. Therefore, it would have no choice but to avoid any efforts to normalise monetary policy for the time being given the risk from external slowdown,” Minami said.

The BOJ took action to enable long-term interest rates to climb more freely in accordance with rising inflation and growth at its meeting in July while maintaining its yield curve control (YCC) targets in place.

In addition, imports decreased 13.5% in the year to July, below the consensus projection of a 14.7% decline, according to figures released on Thursday.

In contrast to the median projection of a 24.6 billion yen surplus, the trade balance changed to a deficit of 78.7 billion yen ($537.27 million).

According to unrelated statistics, Japan’s core machinery orders increased 2.7% in June over May.

Core orders, a highly volatile data series thought to be a predictor of capital expenditure in the subsequent six to nine months, fell 5.8% from the previous year.

Core orders, as predicted by manufacturers surveyed by the Cabinet Office, are expected to decline 2.6% in the July-September quarter. When combined with the weakness in exports, this suggests increasing pressure on Japan’s economy.

“On their own, the July trade figures still point to a small boost from net exports across Q3,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

“But even if that were the case, GDP growth will surely slow sharply,” he added.

(Adapted from NewsWav.com)

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