Japan's Exports Fall for First Time in Four Years

By Jason Clenfield

July 24 (Bloomberg) -- Japan's exports fell for the first time in more than four years as demand for cars and electronics cooled, signaling the U.S. slowdown is spreading to the emerging markets that helped sustain growth.

Exports decreased 1.7 percent in June from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 20 economists surveyed by Bloomberg News was for a 3.3 percent gain. The drop was the first since November 2003.

Today's report adds to evidence the world's second-largest economy shrank in the three months ended June 30 as record oil prices took a toll on sales abroad as well as spending by companies and consumers at home. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan's three largest automakers, are expected to say profit fell last quarter on cooling U.S. demand.

``The economy is losing its main driving force,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``Even demand from Asia, which had been fueling export growth, is slowing.''

The yen traded at 107.76 per dollar at 12:04 p.m. in Tokyo from 107.93 before the report was published.

Exports to the U.S. slid 15.4 percent, a 10th monthly drop and the biggest since November 2003. Shipments to Europe fell 11.2 percent, the second straight decline.

Toyota Motor Corp.'s first-half sales fell 7 percent in North America and Europe and sales growth in China was less than the company projected, the Nikkei newspaper said yesterday. According to a separate report by the Bangkok Post, Toyota is forecasting a drop in Thai truck sales this year for the first time in a decade.

Asian Slowdown

Exports to Asia rose 1.5 percent, the slowest pace in two years. Growth in shipments to China slowed to 5.1 percent from 12.2 percent in May.

Central banks across Asia have been raising interest rates to combat inflation, slowing economic growth and weakening demand for Japanese goods.

``It's clear that export growth has stalled, but that's not a surprise when you think of the policy tightening that's taking place in fast-growing economies,'' said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo.

Policy makers in the Philippines, Thailand and Indonesia all raised borrowing costs this month. Economists expect India to increase rates next week.

Export growth will remain weak until oil prices fall, moderating global inflation and giving central banks room to ease the pace of interest-rate increases, Jerram said.

`New Fog'

``Rising inflationary pressure in East Asia's emerging economies have cast a new fog on Japan's economy and we must keep our eye on it,'' Bank of Japan policy board member Atsushi Mizuno said in a speech today.

Japan's economy shrank at an annual 0.4 percent pace in the second quarter, according to the median estimate of 17 economists surveyed by Bloomberg News last month. The Cabinet Office is scheduled to release the report around Aug. 13.

The Bank of Japan cut its growth forecast last week and said the expansion will cool further as higher commodity prices weaken spending by households and businesses.

Imports climbed 16.2 percent to a record because of the surging oil costs. That caused the trade surplus to shrink 89 percent to 138.6 billion yen ($1.3 billion). Economists predicted a surplus of 500 billion yen.

Slowing demand and rising costs pushed sentiment among Japan's largest manufacturers to a four-year low in June and companies said they expect earnings to decline for the first time since 2001.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net