JAPAN SEES DRAMATIC DOWNTURN IN OCTOBER EXPORT DATA

UNCLAS SECTION 01 OF 02 TOKYO 003302 SENSITIVE SIPDIS STATE FOR EAP/J PASS USTR FOR WCUTLER, MBEEMAN E.O. 12958: N/A TAGS: ETRD ECON JA SUBJECT: JAPAN SEES DRAMATIC DOWNTURN IN OCTOBER EXPORT DATA -------------- Summary -------------- ¶1. (SBU) Reflecting reduced demand for Japan's key exports in the global economic slowdown, Japanese goods exports fell in October, according to Ministry of Finance trade data released November 20. Exports were down 7.7 percent year-on-year, with the largest declines in automobiles, semiconductors, and chemicals. Concurrently, imports were up 7.4 percent, primarily the result of higher year-on-year oil prices, and resulting in a JPY 63.9 billion (approx. US$670 million, at US$1=JPY95) trade deficit for the month. Japan's August deficit of JPY 332 billion (US$3.5 billion) was the first non-January monthly deficit in 26 years, and this latest deficit is Japan's first October deficit in 28 years. End summary. -------------- Sectoral Components -------------- ¶2. (U) Japan's most important export sectors saw the greatest losses in October. Transportation equipment (autos), electrical machinery, and chemicals collectively represent more than half (52.5 percent) of all Japanese exports, and each category saw double-digit declines. These three categories together contributed 88 percent of the overall decline in exports for the month. Iron and steel product exports, on the other hand, saw a 22 percent increase. ¶3. (U) Dependent on foreign sources for roughly 96 percent of its energy needs, Japan's trade balance has been affected dramatically by rising commodity prices. Slightly over one third of all Japanese imports consist of mineral fuels, with petroleum constituting roughly 19 percent total imports. Interestingly, while the GOJ has often raised concerns about food security in a trade policy context, Japan imports approximately 60 percent of the food it needs, and the value of imported foodstuffs are only 23 percent of what Japan spends to import mineral fuel. Japan is highly dependent on these and other imported commodities, and their higher prices have driven up Japanese imports, as measured by value, while imports of manufactured goods have fallen. Select Sectoral Data Highlights: -------------- Category Value Change Share of Total (JPY 100 bil) (y-on-y, pct) (percent) Exports Total 6,926 -7.7 100 Transport Equipment 1,668 -13.1 24.1 - Motor Vehicles 1,137 -15.0 16.4 Electrical Machinery 1,378 -10.6 19.9 - Semiconductors 405 -12.6 5.9 Chemicals 595 -14.4 8.5 Iron and Steel Products 420 22.5 6.1 Imports Total 6,990 7.4 100 Mineral Fuels 2,411 34.2 34.5 - Petroleum 1,333 23.7 19.1 Foodstuffs 563 9.4 8.1 Electrical Machinery 740 -10.1 10.6 Transport Equipment 159 -35.2 2.3 -------------- Geographic Components -------------- TOKYO 00003302 002 OF 002 ¶4. (U) Japan still enjoyed substantial trade surpluses with North America, Asia, and Western Europe, but deficits with the Middle East and Australia were sufficient to push Japan's overall trade into deficit. ¶5. (U) With North America, trade in both directions fell, although Japanese imports from Canada grew. Overall, Japan still registered a JPY 506 billion (US$5.3 billion) surplus with North America. Exports and imports to/from the U.S. fell by 19 and 11 percent, respectively. Japan also saw exports and imports with Western Europe fall at comparable rates, leaving Japan's net surplus with Europe at JPY 296 billion (US$3.1 billion). ¶6. (U) In Asia, trade with China (PRC and HKG aggregated) represented roughly 46 percent of Japan's total two-way trade, and Japan enjoyed a small net surplus of roughly JPY 90 billion (US$950 million). Japan ran a modest surplus with East Asia, reflecting surpluses and larger trade volumes with partners like Korea, Taiwan, and Singapore, which outweighed deficits with other regional trading partners such as Indonesia and Malaysia. A decline of 4.0 percent in exports to Asia was led by double-digit falls with Korea, Taiwan and Hong Kong. A 5.1 percent increase in imports was driven by a 2.9 percent increase from China and nearly 50 percent increases from both India and Vietnam. ¶7. (U) In other regions, Japan's net deficit with the Middle East topped JPY 1.13 trillion (US$11.8 billion),as the October price of oil was reportedly 34 percent higher than a year earlier. Japan's imports from Australia also shot up 49 percent to JPY 477 billion (US$5 billion),passing Saudi Arabia and making Australia Japan's third largest source of imports after China and the U.S. Select Geographic Data Highlights: -------------- Partner Exports Imports (Value JPY 100 bil (y-on-y percent change)) North America 1,319 (-18.2) 813 (-7.2) - USA 1,214 (-19.0) 695 (-11.1) - Canada 104 (-8.0) 118 ( 24.9) Western Europe 942 (-17.0) 646 (-10.9) Asia 3,392 (-4.0) 2,943 ( 5.1) - China 1,161 (-0.9) 1,389 ( 2.9) - Hong Kong 332 (-13.7) 13 (-26.4) - Taiwan 369 (-10.9) 203 ( 1.7) - South Korea 504 (-11.0) 262 (-7.4) Middle East 329 ( 11.3) 1,454 ( 24.3) Australia 153 (-5.5) 477 ( 49.2) -------------- Comment -------------- ¶8. (SBU) It would be premature, based on the one month's figures, to draw conclusions about changes to the structure of Japan's trade balance. However, Japan is relatively sensitive to both the downturn in demand in its key sectors and to high commodity prices. Already entering a recession before the current international economic turmoil, and unable to rely on exports to drive growth, Japan is caught in a tight spot that could increase public demand for economic leadership and put pressure on the government and political parties. Unfortunately, Japan's domestic political situation has delayed the government's ability to push through a second stimulus package, and its large debt may limit the size of any future fiscal stimulus measures. End comment. SCHIEFFER