Newly manufactured vehicles await export at a port in Yokohama, Japan. (Reuters Photo)

By Makiko Yamazaki and Satoshi Sugiyama

TOKYO- Japan’s export growth slowed sharply in August as shipments to the US dropped for the first time in three years, while machinery orders unexpectedly shrank in July in a worrying sign for an economy struggling to mount a solid recovery.

The frail external demand undermines Japan’s quest to drive sustainable economic growth, analysts say, especially given a growing risk of a slowdown in the US and further weakness in China’s economy, two major trading partners.

“Japan’s exports are bound to struggle as the global economy is failing to pick up momentum, with growth in both the US and China economies seen slowing down next year,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

He said a boost from the weak yen to exports has faded as the Japanese currency rebounded sharply in August.

Total exports rose 5.6 percent  year-on-year in August, up for a ninth straight month, data showed on Wednesday, well below a median market forecast for a 10 percent  increase and following a 10.3 percent  rise in July.

Exports to the United States dipped 0.7 percent , the first monthly decline in nearly three years, as auto sales slumped 14.2 percent .

Those to China, Japan’s biggest trading partner, rose 5.2 percent  in August from a year earlier.

The overall picture in terms of volume also provided for sombre reading, with shipments down 2.7 percent  last month from the year-ago period, the seventh consecutive month of declines.

The value of imports grew 2.3 percent  in August from a year earlier, versus a 13.4 percent  increase expected by economists.

As a result, the trade balance stood at a deficit of 695.3 billion yen ($4.90 billion), compared with the forecast of a deficit of 1.38 trillion yen.

Separate data from the Cabinet Office showed core machinery orders unexpectedly declined 0.1 percent  in July from the previous month, confounding a 0.5 percent  rise expected by economists in a Reuters poll.

Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 8.7 percent , blowing past a 4.2 percent  increase seen by economists.

The government stuck with its assessment on machinery orders that recovery is at standstill.

A rise in personal consumption helped Japan’s economy rebound strongly in the second quarter from a slump at the start of the year, but the growth was revised down slightly last week.

In a sign of the economic fragility, a Reuters monthly poll showed last week that business confidence at big Japanese manufacturers sank to a seven-month low in September, with managers across a wide range of sectors citing soft Chinese demand as a concern.

The Bank of Japan is expected to keep monetary policy steady at a two-day meeting that ends on Friday, but signal that further interest rate hikes are coming and highlight progress the economy is making in sustaining inflation around its 2 percent  target. – Reuters