Japan’s exports to China in August weakest since 2016

Summary:

• Japan’s overall exports for August tumbled 8.2% YoY while imports also suffered a meaningful decrease
• Shipments to China suffered their second-largest annual drop in the last three years, it was also the weakest result for August since 2016
• Japan to put in place a sales tax hike on October 1

The Japanese economy is highly dependent on exports, hence foreign trade data could be particularly important there. What we got earlier today cannot be treated as a positive sign, to say the least. Namely, Japanese exports for August tumbled 8.2% YoY and imports also dwindled by 12% YoY. Moreover, the numbers look yet gloomier when we take a look at exports to China as they slumped 12.1% YoY, the second-worst result in the last three years. In turn, when we focus on August alone it turns out that a 2.3% decline this year was the worst month since 2016, as evidenced by the chart below. Although the gloomy numbers for exports had been expected (the consensus had called for even a 10% YoY slump), it could raise some concerns in Japan as the country is priming itself to put in place a sales tax hike on October 1. As a result, we expect Japanese consumers to front-load their imports in September which should be well seen in both retail sales and imports data. Looking forward, the Japanese economic outlook will depend on the extent to how effective measures implemented by the Japanese authorities to handle adverse effects of the mentioned sales tax hike will be. Taking into consideration the cloudy outlook abroad, we reckon that one cannot rule out a recession in the fourth quarter.

Japan’s exports to China fell in August, registering its first decline for the month since 2016. Source: Bloomberg, XTB