Coronavirus impact likely to affect Japan’s export recovery, says Oxford Economics

After exports to China had picked up in previous months, the renewed contraction in the wake of the coronavirus outbreak underscores risks to growth and dents hope for a near-term export recovery, according to the latest research report from Oxford Economics.

Japan’s nominal goods exports fell 2.6 percent y/y in January 2020 (after -6.3 percent y/y in December), with the decline most pronounced for exports to the US (down 7.7 percent) and China (down 6.4 percent).

Commodity-wise the decline is primarily due to falling machinery exports (down 9.5 percent) and, in the case of exports to the US, lower car shipments. Adjusting for price effects, export volumes fell 2.4 percent y/y in January, after dropping 1.2 percent in December.

While January’s numbers likely reflect some distortion due to the Chinese Lunar New Year, the renewed drop of exports to China underscores risks to growth in Q1 considering that the recent coronavirus (COVID-19) outbreak will likely delay a recovery, the report added.

Nominal goods imports fell 3.6 percent y/y in January (after -4.9 percent in December) while import volumes fell 3.4 percent y/y (compared to -0.4 percent in December), suggesting that domestic demand and activity remained weak after Q4’s contraction in GDP growth. The seasonally adjusted trade balance stood at a 224 billion yen deficit (compared to a 107 billion deficit in December).

"With foreign machinery and machine tools orders also remaining weak, we maintain a cautious outlook for trade," Oxford Economics further commented in the report.