Japan’s chemical exports fell by 3.1% year on year to yen (Y) 955.5 billion in September, despite an overall return to growth in shipments abroad, preliminary official data showed on Wednesday.
Volume-wise, exports of plastic materials fell 2.4% year on year to 431,435 tonnes.
Japan’s overall exports swung back to growth in September, rising 4.2% year on year to Y9.4 trillion, compared with a 0.1% fall in August, while imports were up 3.3% at Y9.65 trillion, resulting in a trade deficit of Y234.6 billion.
Semiconductor exports contributed 12.6% year on year of the country’s overall export value as AI-related shipments continue to boost exports growth.
Total exports to the US fell by 13.3% year on year in September, following a trade deal with the US that was formalized in August, lowering tariffs on Japanese goods to 15% from 25% previously.
Overall exports to China rose 5.8%, with chemical exports rising 6.8% year on year.
Meanwhile, EU exports rose 5.0% year on year in September, and shipments to Asia rose 9.2%, supporting overall export growth despite a continued decline in US shipments.
Despite a lower shipment trend over the past few months, Dutch-based financial services firm ING expects the gradual normalization of exports to the US in the near term following an agreed trade deal between the two countries.
WEAKENING YEN
Japan has been grappling with a weakening yen since Sanae Takaichi became the ruling Liberal Democratic Party (LDP) leader on 4 October, boosting exports and making them more competitive.
Her ascension to Prime Minister on 21 October resulted in a further softening of the yen, lowering to Y151.67 against the US dollar as of 03:30 GMT on Wednesday.
While the 64-year-old is an admirer of former Prime Minister Shinzo Abe’s ‘Abenomics’ which advocates for strong fiscal expansion, there remains uncertainty over her Cabinet appointments, which include Minister of Finance Satsuki Katayama and Minister of Economic and Fiscal Policy Minoru Kiuchi.
“Markets are uncertain about the views of Finance Minister Katayama on fiscal policy, and in particular whether her perceived history in supporting and active fiscal policy will result in more meaningful fiscal expansion and as such affect the Japanese Yen,” said Michael Wan of Japan-based MUFG Global Markets Research in a note on Wednesday.
Katayama has historically pushed back against the yen depreciating as an inflationary driver, while also questioning the efficacy of currency intervention in curbing currency weakness, Wan said.
While the LDP controls the Cabinet, they are in a coalition with the Japan Innovation Party (JIP), which combined still results in a minority government, which might make Takaichi’s policy agenda difficult to pass in Parliament, said Min Joo Kang, Senior Economist, South Korea and Japan at ING in a note on 21 October.
“The LDP-Ishin coalition is… two seats shy of a Lower House majority, so more support will be needed if her policy agenda, including budgets and bills, is going to pass,” Kang said.
RATE HIKE POSSIBLE
The yen rising above Y150 against the US dollar could also drive inflation higher, which would support Bank of Japan (BOJ) rate hikes,
“We believe that the Bank of Japan will stay on its policy normalisation path, and we still expect an October hike, though our confidence is quite limited,” Kang said, noting markets widely expect a pause in rate hikes during the BOJ’s October meeting, which will be held on 29-30 October.
On the other hand, questions remain over whether the current yen weakness will be reined in or if the belief that a weaker yen would be beneficial holds, said Naka Matsuzawa of Nomura in a note on 21 October.
“Unless the Takaichi administration sends messages signaling concerns about weak JPY and support for rate hikes, a rate hike at the October meeting seems unlikely,” Matsuzawa said.
“In other words, JPY will have to weaken further for the probability of an October rate hike to rise.”