Japan's Export Growth Slows as U.S. Shipments Plunge

By Jason Clenfield

Sept. 25 (Bloomberg) -- Japan's export growth slowed in August, led by a record drop in shipments to the U.S., increasing the likelihood the economy is in a recession.

Japanese exports grew 0.3 percent from a year earlier after rising 8 percent the previous month, the Finance Ministry said today in Tokyo. The median estimate of 17 economists surveyed by Bloomberg was for a 2.3 percent increase.

A drop in demand for Japan's exports, the main driver of growth for the past six years, is weakening a nation already suffering from weak consumer spending at home. Finance Minister Shoichi Nakagawa, appointed by Prime Minister Taro Aso yesterday, said today the government will consider cutting taxes and increasing spending to buoy the flagging economy.

``Exports are the key for Japan's recovery,'' said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. ``This is a tough situation for Japan's exporters given that we can't envision a pickup in the U.S. economy.''

The yen traded at 105.99 per dollar at 10:35 a.m. in Tokyo from 106.06 before the report was published.

``Exports and capital investment, which led Japan's economy, are getting in a worrisome situation,'' Nakagawa said at a press conference. ``We need to do whatever we can do.''

Japan had a trade deficit of 324 billion yen ($3 billion), the first since January, because of record oil imports. The nation's import bill rose 17 percent from a year earlier.

Shipments to the U.S. plunged 21.8 percent last month, the biggest decline on record, and exports to Europe fell 3.5 percent, today's report said. Weak overseas demand caused the economy to shrink an annualized 3 percent last quarter.

Cut Production

Since August, some of Japan's biggest manufacturers have lowered sales targets and announced cost-cutting measures that could start to take a toll on smaller companies that supply them.

Toyota Motor Corp. last month reported its biggest earnings decline in five years, citing a slump in U.S. sales. The automaker has fired workers, cut production of some of its U.S.- bound vehicles and scrapped a 2009 sales goal. Grim prospects for exporters have sent shares of Nissan Motor Co. down 38 percent this year, while Sony Corp. shares have shed 46 percent.

``Exports have been the main driver of the recent economic expansion. Without them the downside risks are heightened,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. Overseas sales won't recover until the U.S. economy picks up, she said.

`Sluggish'

The Bank of Japan last week used the word ``sluggish'' to describe the economy, saying that poor export sales and high material costs have cut into margins.

Sales in Europe, Asia and emerging markets supported export growth in the 11 months through July as shipments to the U.S. declined. Now those markets are also deteriorating.

The European economy shrank for the first time in almost a decade last quarter, and European Union Economic Affairs Commissioner Joaquin Almunia said this month that the outlook is ``unusually uncertain.'' Growth in China, which last month overtook the U.S as Japan's No. 1 export customer, has slowed for four quarters.

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