MNI POLICY: BOJ July Real Export Index Up 7.4%; Q3 Seen Higher

A rise in the Bank of Japan's real export index in July following the sharp drop in Q2, with officials now expecting a modest increase across the July-September period, with overseas sales of autos and IT-related goods picking up gradually.

The July real export index rose 7.4% m/m for the second straight rise following an upwardly revised 1.7% gain in June, which was the first rise in four months.

Although auto and IT-related goods are seen picking up gradually in the coming months, capital goods sales are expected to remain weak, capping the scale of the overall recovery, although the pace will pick up as the impact of Covid-19 wanes globally.

Japan's exports fell 19.2% year-on-year in July, for the 20th straight drop following the 26.2% fall in June and the 28.3% decline in May, which was the biggest drop since September 2009. Imports fell 22.3% year-on-year in July for 15th straight decline. Overall, Japan's trade surplus was JPY11.6 billion in July, the first surplus in four months.

AUTO EXPORT DECLINE EASES

Auto exports fell 30.0% y/y in July, with shipments to the U.S., which account for about 40% of the total, down 6.7%, improving significantly from a 63.3% fall in June. EU exports fell 48.5% after a 26.2% fall in June.

Machinery shipments fell again in July, down 17.7%, indicating overseas firms remained cautious on capital investment. Semiconductors exports fell 0.6% y/y for the third straight drop, while chip-making equipment exports rose 15.1%.

Exports to China, Japan's largest trading partner, rose 8.2% y/y in July for the first rise in seven months following a 0.2% decline in June. Exports to the U.S. fell 19.5% y/y in July, a 12th straight drop, narrowing from a 46.6% fall in June.