October Trade Statistics

◆In the October Trade Statistics (Ministry of Finance), export value declined 6.5% y/y, a wider slide than the market consensus (down 4.9%) and the fifth monthly slide in a row. Export value declined 2.8% m/m, the first slide in two months on a seasonally adjusted basis. Thus, the underlying deterioration continues. In general, while exports to the EU and Asian trading partners have been sluggish, overall exports have been supported by those to the US. However, the latter have also begun to slow recently.

◆While trends of exports to China have attracted market attention amid worsening Japan-China relations, export value to China declined 11.6% y/y, narrowing the slide from September (down 14.1%). This is attributable for the first gain in 13 months for exports of chemicals (up 3.9%) and narrower declines for those of general machinery (down 20.4%) and electrical machinery (down 2.0%), products with higher weightings among those shipped to China. However, exports of transportation equipment plunged 54.1% and those of finished cars saw a plunge of 82.0%, indicating that the worsening of Japan-China relations had a significant impact on the industry.

◆Although the worsening of exports continues, as our main scenario, we expect they will start to recover gradually in 2013 and onward. Exports to the EU will likely remain sluggish for the time being, dragged down by the ongoing EU economic stagnation. In contrast, exports to the US are unlikely to deepen the bottom but should remain firm, supported by the ongoing moderate US economic recovery. Meanwhile, exports to China will likely recover gradually, accompanied by a bottoming out of the Chinese economy. However, the worsening of Japan-China relations is likely to drag down exports from Japan to China, which warrants monitoring.