MNI POLICY: July Export Index Up 0.9%; BOJ Still Cautious

By Hiroshi Inoue

     TOKYO (MNI) - Japan's real export index posted a second straight rise in

July,  but exports continue to be hit by the slowdown in overseas economies and

the Bank of Japan maintains its cautious outlook, MNI understands.

     BOJ officials maintain their view that "exports are expected to show some

weakness for the time being" as overseas economies haven't yet recovered.

     But the BOJ thinks exports will be on a moderate increasing trend, with

overseas economies still growing modestly.

     --EXPORT INDEX RISES

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

Finance trade data rose 0.9% on month in July, following a 4.1% gain (revised

from +4.0%) in June.

     The July index is up 2.1% from the April-June quarter following +0.1% on

quarter for the second quarter.

     But the July data alone isn't sufficient to assess the underlying trend, as

BOJ officials usually focus on quarter-on-quarter changes.

     Overall, Japan's exports -- a main driver for the economy -- fell 1.6% on

year in July for the eighth straight drop, leaving a deficit of Y249.6 billion

in July following a surplus of Y589.6 billion in June.

     --IT-ADJUSTMENTS HIT BOTTOM

     Japan's latest trade data showed continued weak demand for semiconductors.

BOJ officials see a pick-up in IT-related exports as essential for a sustained

move to a recovery path for Japan, but they do now see the possibility that the

sector might have hit bottom.

     Overall exports of semiconductors fell 7.7% in July, slightly better than

-7.9% in June. The drop of exports of semiconductors to Asia and China slowed to

-6.8% and -19.0% in July from -7.5% and -21.3% in June, respectively.

     --WEAK CARS WORRY

     Meanwhile, the latest trade data heightened BOJ concern over weak global

demand for automobiles. Exports to Asia rose 5.8% on year in July, slowing from

+11.9% in June, and exports of automobile parts fell 21.5% in July following

-21.1% in June.

     Exports of cars to China rose 31.4% in July, slowing from +78.7% in June,

although exports of automobile parts fell 35.0% in July following -30.5% in

June. Exports to the U.S. rose 1.5% in July vs. +4.3% in June, and auto parts

exports rose 1.1% following -9.2% in June.

     Japan's exports to the U.S., its largest single export market, rose 8.4%,

the 10th straight increase. But that was not enough to offset the weakness in

exports to China and the rest of Asia.

     --WEAK EXPORTS TO ASIA

     Japan's exports to Asia, accounting for about 55% of the total, fell 8.3%

y/y in July, hot on the heels of a 8.2% fall in June and the ninth straight

monthly drop.

     Overall exports to China, accounting for about 20% of total exports,

dropped 9.3% y/y in July for a fifth straight fall.

     The July trade data also showed weak demand for chip-making equipment as

capital goods; fell 13.5% in July vs. +1.1%.

     Exports of those goods to the Asian and China slowed to -26.8% and -31.5%

in July from -13.8% and -27.1% in June, respectively, indicating capital

investment remained weak overseas but weak demand for capital goods may hit

bottom.

--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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