Japanese Exports Rise, but Demand for Goods Is Lackluster

TOKYO — A small increase in Japanese exports, improving business confidence and surging investment flows may show early successes for Prime Minister Shinzo Abe’s pro-growth strategy, but companies have yet to see signs of a sustained economic lift, data showed Thursday.

Exports rose 1.1 percent in March from the level of a year earlier, sentiment among manufacturers rose for a fifth consecutive month in April, and foreign investors bought a record amount of Japanese stocks last week.

But as Mr. Abe’s policy agenda, dubbed Abenomics, underpinned optimism for a recovery, the data also showed a weaker yen was increasing import bills, with Japan posting a record fiscal-year trade deficit of ¥8.17 trillion, or $83.7 billion, and a Reuters poll showed sentiment remained negative among manufacturers with many yet to see sizeable increases in orders or demand.

“The outlook is seen brightening as the yen has weakened, but it takes time before it leads to actual demand and orders,” an electric machinery company said in the Reuters Tankan poll, which measures sentiment among manufacturers.

Mr. Abe’s push for aggressive fiscal and monetary policies after two decades of stagnation has driven the stock market up and the yen down since November.

The centerpiece of that effort is the Bank of Japan’s $1.4 trillion stimulus plan, announced April 4, which aims to double the monetary base by the end of 2014.

Since mid-November, the stock market has surged more than 50 percent and the yen has fallen more than 20 percent against the dollar.

That has attracted the interest of foreign investors — they bought a record ¥1.57 trillion worth of Japanese stocks in the week that ended April 13 and bought ¥8.22 trillion worth since mid-November. Japanese investors, capitalizing on the fall in the yen, are also bringing back funds from overseas.

Akira Inoue, head of global business development at Sumitomo Mitsui Trust Bank’s global fiduciary business department, said that until recently foreign institutional investors had no interest in the Japanese market.

“Even after Japanese stocks’ rally began late last year, many took a wait-and-see attitude. But the situation changed in March,” Mr. Inoue said.

Business confidence has improved through Mr. Abe’s first months in office, and the Reuters Tankan data showed manufacturers’ sentiment rose seven points, to minus 4, in April.

The index in the Reuters poll is derived by subtracting the percentage of pessimistic responses from optimistic ones. The lower the number, the gloomier the outlook.

Companies expect the indicator to turn positive in coming months. However, they also say the real economic effect of Abenomics has been limited so far.

“The Reuters Tankan underlines rising expectations among Japanese firms for a brighter outlook, although the real economy is lagging behind those expectations,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

That is not unexpected — it takes time for a weaker yen to increase exports and for the wealth effects of rising markets to flow through — but the risk is that if activity does not pick up, confidence in Mr. Abe and the economy could falter.

Another risk is that although policy makers can drive the yen lower to give a price advantage to Japanese exporters, they cannot control demand elsewhere.

Uncertainty about China’s economy, Europe’s troubles and a slow recovery in the United States all raise doubts about how much export demand can increase, whatever the yen’s value.

“The broad picture remains intact as the weaker yen is having more of an impact on boosting imports than exports, while the recovery in the world economy, particularly China, is tepid,” Mr. Minami said.

Article source: http://www.nytimes.com/2013/04/19/business/global/japanese-exports-rise-but-demand-for-goods-is-lackluster.html?partner=rss&emc=rss