TOKYO- Japan’s exports extended their double-digit slump into a fifth month in July as the coronavirus pandemic took a heavy toll on auto shipments to the United States, dashing hopes for a trade-led recovery from the deep recession.
Meanwhile, core machinery orders, a leading indicator of business spending, unexpectedly fell to a seven-year low in June, dashing hopes that domestic demand would make up for some of the slack from sluggish global growth.
The grim batch of data suggests the depressed conditions seen in the world’s third-largest economy in the second quarter showed no signs of rapid improvement in the current quarter, compounding challenges for policymakers as they look to prop up activity.
Total exports fell 19.2 percent in July from a year earlier, roughly in line with market expectations for a 21.0 percent decrease, government data showed on Wednesday.
It was, however, smaller than a 26.2 percent drop in June, which some analysts saw as a sign external demand may have bottomed out.
“Today’s trade data confirmed that external demand hit bottom and is heading toward gradual recovery,” said Masaki Kuwahara, senior economist at Nomura Securities.
“But the pace of recovery remains slow. Given the risk of a second wave of infections, it will take a couple of years before exports and GDP return to pre-pandemic levels,” he said.
Shipments to the United States plunged 19.5 percent in the year to July as demand for engines and automobile remained weak, a sign Japan was feeling the pinch from the slow US recovery from the pandemic’s pain.
In a glimmer of hope, exports to China – Japan’s largest trading partner – rose 8.2 percent to mark the first increase in seven months on brisk demand for chip-manufacturing equipment and cars.
But those to the rest of Asia were down 8.2 percent, the data showed, reinforcing expectations that a full-fledged recovery in regional trade was still some time off.
Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, fell 7.6 percent in June, confounding market estimates of a 2.0 percent gain.
Total core orders slumped to 706.6 billion yen ($6.72 billion), the lowest since February 2013, forcing the government to downgrade its assessment to say machinery orders were “declining.”
Manufacturers surveyed by the government expect core orders to fall 1.9 percent in the current quarter after dropping 12.9 percent in April-June, the data showed.
A decline in July-September would mark the fifth straight quarter of falls, the longest streak of decrease since orders slid for six straight quarters during the 2008 global financial crisis.
Japan’s economy suffered a record annualized contraction in April-June as the pandemic crushed demand for cars and other exports and kept consumers confined at home.