JAPAN’S exports jumped in January and manufacturers’ confidence improved this month, data showed yesterday, offering Tokyo some hope that robust Asian demand will help shore up a stuttering economy as it navigates global and domestic risks.
Prime Minister Sanae Takaichi’s tax cut and spending plans could inject much needed momentum, analysts say, but she faces the challenge of avoiding a renewed yen and bond selloff that jolted investor confidence last month.
Takaichi’s fiscal pledge has also created policy tensions between her administration and the Bank of Japan, which has committed to normalising monetary settings in the world’s fourth-biggest economy after years of near-zero borrowing costs.
The International Monetary Fund said yesterday Japan’s economy has displayed “impressive resilience” to global shocks, but warned that risks were tilted to the downside due to rising trade frictions including from strained relations with China.
“An abrupt deterioration of financial conditions could weaken confidence and domestic demand. Domestically, the main risk remains weak consumption if real wage growth fails to turn positive,” the IMF said in its policy recommendation to Japan.
Japan’s total exports rose 16.8 per cent year-on-year in January, data showed, the biggest jump in more than three years on robust shipments to China reflecting a surge in demand ahead of the Lunar New Year in mid-February.
A Reuters poll also showed manufacturers’ confidence rose for the first time in three months in February, underpinned by stronger machinery orders and a weaker yen.
The outcome follows separate data this week that showed the economy limped back to meagre growth in the fourth quarter, sharply undershooting market expectations due to weaker-than-expected exports and capital expenditure.
Analysts say the export jump in January was largely due to distortions caused by the timing of China’s Lunar New Year, which landed in January last year but in February this year.
“Looking at the run of data over the last couple of months, Japan’s nominal goods trade is close to balance,” said Stefan Angrick, head of Japan and Frontier markets Economics at Moody’s Analytics.
“But the outlook is fraught with risks. Higher US import levies and foreign competition are already weighing on industrial output and export volumes,” he said. “Trade threats from China are an added concern.”
Japan’s exports have been recovering after an initial blow from US tariffs hit US shipments in the July-September quarter. But momentum has remained fragile despite a September trade deal with Washington that set a baseline 15pc tariff on nearly all goods.
Analysts expect the Japanese economy to gather momentum with the help of domestic drivers such as private consumption, with wage growth expected to ease the burden on households from rising living costs.
The sizeable spending plans of Takaichi, who took her ruling party to a landslide election win earlier this month, will likely underpin growth, analysts say.
Takaichi has also pledged to suspend by two years an 8pc consumption tax on food to cushion the blow to households from rising living costs. While the step is milder than more extreme tax cut proposals made by opposition parties, it would further strain Japan’s already worsening finances.
Japan’s annual bond issuance will likely surge 28pc three years from now due to rising debt-financing costs, a finance ministry estimate reviewed by Reuters showed, casting doubt on Takaichi’s argument that the country can deliver tax cuts without boosting debt.
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