Japan exports growth slows sharply, keeps pressure on BOJ to act

Tuesday, 22 April 2014 00:25 - - {{hitsCtrl.values.hits}}

REUTERS: Japan suffered its worst annual trade deficit in March as exports growth slowed to its weakest in a year, suggesting a rapid loss of economic momentum that may prompt policy makers into early action as a national sales tax hike puts more strain on growth. The Bank of Japan has repeatedly ruled out fresh easing measures in the near term, insisting that the economy is on track to meet its 2% inflation target even as recent soft data hit investor confidence. However, the double-whammy of weak external demand and a chill in domestic consumption from the 1 April sales tax hike to 8% from 5% might add pressures on the BOJ to act sooner rather than later. “If sluggish exports persist and domestic demand slumps more than expected in April and May, the Bank of Japan could ease policy further as early as in June or July,” said Naoki Iizuka, economist at Citigroup Global Markets Japan The slowdown in China, a major export market for Japan, is another blow for the world’s third-biggest economy. Ministry of Finance data showed that exports rose 1.8% in March from a year earlier, the slowest since March last year, following a 9.8% annual gain in the previous month. That was well below a 6.3% increase expected by economists in a Reuters poll. Worryingly, shipments to China rose an annual 4.3% in March, a marked slowdown from a 27.6% annual increase in February. Moreover, US-bound shipments grew a modest 3.5%, the slowest annual gain since December 2012 when they fell 0.8%. The weak external shipments helped push Japan’s trade deficit to a record 13.75 trillion yen ($ 134.45 billion) for the fiscal year that ended in March, further undermining the balance of payment position. In volume terms, shipments fell 2.5% in March from a year earlier, underscoring the struggles of the export sector as a weaker yen has boosted import costs more than export income. Policymakers are counting on exports - a key driver of the Japanese economy - to help cushion any slide in domestic demand after the sales tax rise.