Boost from Japan's net exports to fade next year

According to the preliminary estimate, net exports reduced quarterly GDP growth by 0.2 percentage points (pp) in the first quarter of the year relative to Q4 2014. However, if seen from a somewhat longer perspective, net exports are actually rising strongly: While export volumes were up 7.4% y/y last quarter, import levels were flat at their level of a year before. Net exports is still expected to lift annual GDP growth by around 0.5 pp for 2015 as a whole, says Capital Economics. 

The strength in exports is easily explained by the gains in price competitiveness gains caused by the plunge in the yen, even though the impact took longer to materialise than many had anticipated. Export volumes have been rising relative to domestic production since early last year. Another reason for the weakness in import volumes is that energy import volumes have continued to decline even though the first nuclear reactor has yet to resume operations. 

In fact, Japan now imports less energy than before the Great East Japan Earthquake, as households and firms have reduced energy consumption in response to the surge in electricity prices since the disaster.