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Japanese exports fell sharply in May 2016

Japanese exports fell sharply in May 2016, due to collapse of supply chain because of the earthquake in Kumamoto and the slower growth in emerging economies. In the fifth month of 2016, exports collapsed by 11.3% yoy, according to recent data of the Ministry of Finance of Japan. The median valuation of analysts was for an annual fall of 10.4% after a decrease of 10.1% in April. In the coming months exports may increase, as foreign demand is showing signs of stabilizing, but Prime Minister Shinzo Abe remains under pressure to support growth after the continued appreciation of the yen threatens exports and corporate profits.

The decline in May was due to the smaller supply of steel, semiconductors and electronic components.

Series of earthquakes hit southern industrial center of Kumamoto in mid-April, destroying homes and causing landslides. The electronics and car parts industry in the area was suspended. A number of companies were able to restore production quickly, but it took more for some factories to return to full production capacity.

Exports to China, which is the biggest trade partner of Japan, shrank by 14.9% in May, while exports to USA declined by 10.7% yoy. Exports to Asia, which accounts for more than half of Japan sales abroad, decreased by 13% yoy, while exports to European Union has decreased by 4%.

At the same time this year the JPY has appreciated about 15% against the USD amid expectations for higher US interest rates and demand for the currency as a refuge. If the currency of Japan continued to appreciate, it could reduce the revenues and profits of exporters, which may discourage companies to increase wages and investment costs. More expensive JPY also complicates attempts by the Bank of Japan to increase inflation, because higher exchange rate reduces the cost of imported goods.

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