Japan's exports, machinery orders fall as coronavirus risks grow

[TOKYO] Japan's machinery orders tumbled at their fastest pace since 2018 while exports posted a 14th straight month of decline as the world's third-largest economy grappled with the widening impact of the coronavirus outbreak and a recent sales tax hike.

Government data out on Wednesday showed exports fell 2.6 per cent year-on-year in January, smaller than a 6.9 per cent decrease expected by economists and dragged by US-bound shipments of cars and construction and mining machinery. It followed a 6.3 per cent fall in December.

Separate data on Wednesday showed core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, fell 12.5 per cent month-on-month in December, bigger than a 9.0 per cent drop seen by economists.

The data underscores the challenge Japan faces in overcoming external and domestic pressures, with little room left for policy maneuvering and the economy teetering on the edge of a recession.

While new year holidays in Japan and China were likely a bigger drag on exports in January than the virus, analysts expect China-bound shipments to weaken as the outbreak hits demand from February.

"The spreading new virus has prolonged the suspension of China's factory operations and declines in capacity utilisation," said Koya Miyamae, senior economist at SMBC Nikko Securities. "That will cause ripple effects on Japanese exports from February."

Ministry officials said they were not yet sure how the coronavirus had affected shipments to China.

TOURISM, SUPPLY CHAIN DISRUPTIONS

Data on Monday showed the economy shrank the most since 2014 in the last quarter as domestic demand took a hit from an October tax hike.

The virus has killed more than 2,000 people in mainland China and already taken a toll on China's economy - Japan's largest trading partner - hampering supply chains for car manufacturers to smartphone makers and disrupting tourism.

In terms of volume, Japan's exports declined 1.6 per cent year-on-year in January in a sixth straight month of decline.

By region, Japan's exports to China fell 6.4 per cent in value year-on-year January, dragged down by chemicals, car parts and electronics parts.

Exports to Asia, which account for more than half of Japan's overall exports, fell 3.2 per cent year-on-year in January, marking the 15th straight month of decline.

US-bound shipments, a key destination for Japanese cars and electronics, fell 7.7 per cent in January, posting a sixth straight month of decline, led by a 18.5 per cent fall in automobiles due to softening demand for passenger cars, the officials said.

Reflecting weak domestic demand, Japan's imports fell 3.6 per cent year-on-year in January, versus the median estimate for a 1.3 per cent decrease, dragged down by demand for liquefied natural gas, mobile phones from China and coal.

Manufacturers surveyed by the Cabinet Office forecast core orders, which exclude those for ships and electricity, to drop 5.2 per cent in January-March after a 2.1 per cent fall in the previous quarter, dashing policymakers' hope for domestic demand to offset weak exports.

In December, manufacturers' orders rose 4.3 per cent as gains in electrical and general production machinery offset a drop in automobiles, while those from the service-sector fell 21.3 per cent, dragged down by telecommunications and goods leasing.

REUTERS