Japan’s Exports Continue to Fall

The Japanese voted for a change of government at the weekend and the incoming administration will have to deal with the problems that have been plaguing the current leadership. Figures just released have shown that Japan’s exports have fallen to a sixth straight month as a combination of weak global demand and an expensive Yen take their toll. Exports to China have fallen back by 14.5% (year on year for November) partly as a result of a slowing of the Chinese economy but also as a consequence of a territorial dispute over some uninhabited islands in the East China Sea which are claimed by China, Taiwan and Japan. Given that the administration of Mr Abe is taking a hawkish position on the dispute, it is unlikely that tensions will be easing soon.

Japan’s exports to the European Union have declined by 20% in the year to November as the EU continues to struggle with the sovereign debt crisis and with its own slowing demand. The overall position of Japan’s exports with the rest of the world showed a 4.1% decline over the past year. The Prime Minister elect has said that he will do all that it takes to weaken the Yen and to try to reverse the long-standing problem of price deflation which bedevils Japan. It has been suggested that the Bank of Japan may be asked to print money and target inflation of 3% (rather than the current wish value of 1%), but these measures could backfire. Given that the Liberal Democratic Party has an effective 2/3 majority in the lower house, it will have power to force through the legislation it feels that the country needs.

The Bank of Japan has announced a further stimulus package worth $119 billion with which it will buy government bonds in order to keep the costs of borrowing low. It has left interest rates unchanged and within the band of 0 to 0.1%