MNI POLICY: BOJ Aug Real Export Index Post 3rd Straight Gain

Japan's real export index posted a third straight gain in August, underpinning the Bank of Japan's view on a gradual export recovery is underway as the global economy picks up, MNI understands.

However, bank officials remain cautious that it will take time for exports to recover to pre-Covid-19 levels as global demand for capital goods will remain sluggish.

The August real export index rose 6.5% m/m after an upwardly revised 7.7% gain in July and a 1.7% rise in June, which was the first rise in four months. The real export index for July-August rose 10.1% from the previous quarter, posting the first rise in four quarters. The index fell 18.4% in the second quarter.

Bank officials see exports of autos and IT-related goods picking up gradually in the coming months, although capital goods exports will remain weak, restricting a sharp recovery of overall exports.

Businesses remain cautious about implementing capital investment amid the heightened uncertainties over global demand caused by the lingering concern over the spread of coronavirus.

The BOJ has said that it is likely that exports will be at low levels for the time being, but will pick-up as the impact of Covid-19 wanes worldwide.

TRADE SURPLUS

Japan's exports fell 14.8% year-on-year in August, for the 21st straight drop following -19.2% in July. Imports fell 20.8% year-on-year in August, for the 16th straight drop following a 22.3% dip in July. Overall, Japan's trade surplus was JPY248.3 billion in July for the second straight surplus following a surplus of JPY10.9 billion in July.

Exports of automobiles fell 19.4% y/y in August following the 30.0% dip in July. Shipments of autos to the U.S., which account for about 40% of the total, fell 3.5% in August, improving from a 6.7% decline in July and -63.3% fall in June. EU exports fell 29.8% after a 48.5% fall in July.

Machinery shipments fell again in July, down 16.8% after also falling 17.7% in July, indicating overseas firms remained cautious on capital investment. Capital goods exports are likely to remain weak for a while, mainly weighed by machine tools to construction machines for the resources industry, the BOJ views.

Semiconductors exports fell 0.5% y/y in August, for the fourth straight drop following a 0.6% fall in July. Chip-making equipment exports rose 10.1% in August after rising 15.1% in July.

Exports to China, Japan's largest trading partner, rose 5.1% y/y in August for the second straight rise following +8.2% in July. Exports of chip-making equipment rose 35.6% in August following +23.6% in Jly. Exports of automobiles to China rose 29.0% in August after rising 19.0% in July. Exports to the U.S. fell 21.3% y/y in August, a 13th straight drop, slightly widening from a 19.5% fall in July.