Japan's Exports Fell the Most in Almost Seven Years

By Jason Clenfield

Nov. 20 (Bloomberg) -- Japan's exports declined at the fastest pace in almost seven years in October as the global financial crisis intensified, stifling overseas demand.

Exports, the main engine of Japan's economic growth in the past six years, fell 7.7 percent from a year earlier, the biggest drop since December 2001, the Finance Ministry said today in Tokyo. Economists surveyed by Bloomberg News predicted an 8 percent drop.

The financial crisis that erased $16 trillion from global stock markets since Lehman Brothers Holdings Inc.'s collapse has smothered growth worldwide. Exporters including Canon Inc. have slashed profit forecasts and cut investment plans in the past month, damping prospects for an economy that slipped into a recession in the third quarter.

``We're in store for even more depressing export news,'' said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. ``Exports will heavily weigh on Japan's economy as the impact of the global financial crisis deepens and further cools demand around the world.''

The yen traded at 95.75 per dollar at 9:28 a.m. in Tokyo from 95.88 before the report was published. Japan's currency has advanced 9.2 percent since September, eroding exporters' earnings. The Nikkei 225 Stock Average slid 4.6 percent.

Japan's economy contracted for a second consecutive quarter in the three months ended Sept. 30, following the U.S. and Europe into recessions, as businesses cut spending. Growth in China, Japan's largest trading partner, has slowed for four quarters.

Emerging Markets

Today's report showed the global financial crisis is hurting demand from the emerging markets that have propped up Japan's export growth as the U.S. and Europe falter. Exports to Asia fell 4 percent, the first decline in more than six years. Shipments to China fell for the first time in three years.

Shipments to Europe plunged 17.2 percent, the largest drop since December 2001, and demand from the U.S. dropped 19 percent.

``Exports and capital spending have declined across the board as the outlook for the key European and North American economies has become increasingly gloomy,'' said Naoki Iizuka, senior economist at Mizuho Securities Co. in Tokyo. ``Japan's real gross domestic product will inevitably shrink in the fourth quarter and in the first quarter of next year.''

Imports climbed 7.4 percent, causing a trade deficit of 63.9 billion yen ($666 million), the third shortfall this year.

In addition to the weaker overseas demand, exporters have been hurt by the yen's appreciation. Japan's currency rose to a 13-year high against the dollar last month and has gained 22 percent versus the euro since September.

Canon, the country's largest camera maker, last month forecast profit growth would fall for the first time in nine years. The company said it will cut capital spending 4.7 percent in 2008.

Nissan Motor Co., Japan's third largest automaker, said this week it will be unprofitable in the second half of the year ending March 31. The carmaker's U.S. sales fell 34 percent in October.

Automobile exports fell 15 percent, the ministry said. Nissan and Toyota Motor Corp. are cutting production and staff, worsening the outlook for the domestic economy.

Isuzu Motors Ltd., Japan's largest maker of light-duty trucks, will cut 1,400 temporary and part-time workers and reduce output from next month, the company said today.

``Declines in exports and production may work as a vicious circle for the economy,'' said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. ``Japan's downturn will probably continue through the first quarter of next year.''

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