Japan July chemical shipments rise 12%, overall exports recovery continue

SINGAPORE (ICIS)–Japan’s chemical exports rose 12% year on year to yen (Y) 1.04 trillion in July, driven in part by increased plastic materials shipments abroad, with a weaker yen also contributing to the inflated trade figures overall, official data showed on Wednesday.

• Trade deficit of Y622 billion recorded in July, reversing June surplus
• Overall exports to key trade partner China increase 7.2% in July
• Yen hit 38-year low against US dollar in July

The growth in July chemical exports extends the upward trend to seven consecutive months, building on favorable low base effects following a string of contractions throughout most of 2023.

The country’s exports of plastic materials rose by 16.6% year on year to Y303.8 billion in July, the Ministry of Finance (MOF) said in a statement.

By volume, exports of plastic materials rose by 8.9% year on year to 471,703 tonnes.

Shipments of organic chemicals rose by 19.4% year on year to Y185.5 billion in July.

Exports of motor vehicles rose by 6.2% year on year to Y1.69 trillion in July, while shipments of motor vehicle parts were up by 4.4% at Y376 billion.

Japan’s overall exports rose by 10.3% year on year to Y9.62 trillion in July, while imports were up 16.6% at Y10.2 trillion.

This resulted in a trade deficit of around Y622 billion, reversing the surplus of about Y224 billion in June.

By region, shipments to the US rose 7.3% year on year, a slightly slower pace than the previous month, while exports to China increased 7.2%.

In contrast, shipments to the EU declined 5.3% year on year.

WEAKER YEN INFLATING EXPORT FIGURES
The MOF reported that that the yen averaged 159.77 against the US dollar in July, marking a 12.3% decline in value compared to the same period last year.

The yen plummeted to a 38-year low against the US dollar on 3 July, breaching the 162-per-dollar threshold for the first time since December 1986, as divergent monetary policies between Japan and the US continued to drive the currency’s decline.

Higher interest rates in the US make dollar-denominated assets more attractive due to higher yields compared with Japanese assets.

The yen has made strong gains after the BOJ’s decision on 31 July to raise interest rates to levels not seen since 2007, following the one on 19 March this year when the central bank lifted a negative interest rate policy and ended equity purchases and yield curve controls.

On Wednesday, the yen was trading at around 145.5 to the dollar. The rate has fluctuated over the last 30 days, with a high of 156.9 and a low of 144.7.

EXPORTS PROPELLING ECONOMY TO RECOVERY
After a two-quarter slump, Japan’s economy bounced back in the April-June period, posting an annualized growth rate of 3.1%, driven by a resurgence in consumer spending and continued exports growth.

“We expect the latest growth rebound to extend into Q3 supported by an extension of the consumption rebound, aided by influx of tourists and accelerated tech investments,” Alvin Liew, senior economist at Singapore-based UOB Global Economics & Markets Research said.

The rebound in consumption is likely to encourage the central bank to stay the course on its monetary policy normalization path, but recent market volatility may prompt the central bank to exercise greater caution, Liew said.

“We continue to expect the BOJ to stay on the rate tightening trajectory although it may not be a continuous cycle and likely to be a limited normalization path.”

Focus article by Nurluqman Suratman