MNI POLICY: As August Exports Fall, Car Sales A BOJ Concern

By Hiroshi Inoue

     TOKYO (MNI) - Japan's real export index fell in August, with weaker

shipments of automobiles and auto parts increasing Bank of Japan concerns over

an early recovery for Japan's exports, MNI understands, with officials

maintaining the view that "exports are expected to show some weakness for the

time being".

     --EXPORT INDEX DROPS

     The real export index, calculated by the BOJ based on the Ministry of

Finance trade data, fell 0.9% on month in August, following a 1.0% gain (revised

from +0.9%) in July. The index for July and August was up 1.8% from the

April-June quarter following +0.1% q/q in Q2.

     Exports fell 8.2% y/y in August, for a ninth straight drop following a 1.5%

in July, while imports fell 12.0% y/y for a fourth straight drop.

     Japan posted a trade deficit of Y136.3 billion following a deficit of

Y250.7 billion in July. The August trade data indicated the fall for IT-related

goods around the globe has hit bottom, although there was no clear sign of a

pick-up.

     --WEAKER AUTO EXPORTS

     The August trade data confirmed the weak demand for autos and parts that

BOJ officials expressed concern over last month, with a flow-through into the

wider economy a fear.

     Shipments of automobiles globally fell 7.2% on year in August (vs. +9.2% in

July) and of their parts dropped 13.6% (vs. -10.7% in July), while those to the

U.S., which account for about 40% of total Japanese auto exports, fell 13.0% on

year in August, reversing from +1.5% in July.

     Overall exports to the U.S. posted the first drop in 11 months, down 4.4%

on year following +8.4% in July.

     Shipments of automobile to the China dropped 0.1% on year in August,

sharply reversing from +31.4% in July. Exports of automobile parts to the China

fell 27.9% in August following -35.0% in July. Officials don't expect Japan's

economy to lose momentum immediately as domestic demand remained solid but those

officials are paying attention to how weak manufacturers spill over to

non-manufacturers and consumer sentiment.

     --TAX HIKE WORRY

     Officials are also concerned over the impact of the sales tax hike

scheduled on Oct. 1 on consumer spending. The drop in real income caused by the

tax hike will likely weigh on private consumption as wage hikes remained weak

compared to the tightness in the labor market situation.

     The BOJ board members will carefully examine how a delayed recovery of

overseas economies affects Japan's economy and the sustained downside risks to

the economy at its two-day policy-setting meeting ending Thursday.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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