Japan June exports slide in warning sign for economic outlook

TOKYO: Japan's exports unexpectedly fell in June for a second straight month, weighed down by a drop in shipments to Asia and the United States, signalling that weak external demand may require bolder measures from policymakers to sustain the country's economic recovery.

Exports fell 2.0 percent in June from a year earlier, compared with a 1.0 percent increase expected by economists in a Reuters poll, data from the Ministry of Finance showed on Thursday.

That followed a 2.7 percent decline in the prior month, which was the first annual drop in 15 months.

Sluggish exports, a weak spot in the world's third-largest economy, have been a concern for policymakers who hoped that a recovery in external demand would help offset the pain from a sales tax hike in April.

Analysts say weak exports alone may not prompt the Bank of Japan to expand its massive quantitative and qualitative monetary easing policy, but if domestic demand fails to convincingly recover, it could raise expectations for additional monetary expansion.

Those expectations had subsided in recent weeks in the face of the BOJ's dogged confidence that it will meet its goal to push inflation to 2 percent by next year. The target is a core element in the government's "Abenomics" strategy to pull the long-moribund economy from two decades of deflation.

"This raises more concern about how the economy will do after the sales tax hike and makes the government less likely to proceed with the next tax hike scheduled for next year," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

"Weak exports alone will not prompt the Bank of Japan to ease policy, but if

consumer spending also weakened, then expectations for a policy change would increase."

Exports to the United States, a key market, fell 2.2 percent in June from a year ago as more Japanese companies produce goods in other countries, such as Mexico, for US consumers. Car shipments to the United States fell 6.8 percent.

Exports to China, another key market for Japan, rose 1.5 percent, but exports to Asia, which accounts for more than half of Japan's total exports, fell 3.8 percent, hit by sluggish shipments of electronics parts.

Some respite for policymakers, though, came in the form of July's Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) which saw the new export orders return to growth for the first time in four months.