Japan's Exports To US Post First Rebound In 8 Months As Tariff Pain Eases

Japan's exports to the U.S. rebounded for the first time in eight months in November, in a sign of easing pain from U.S. tariffs, government data showed on Wednesday, bolstering the case for the central bank to continue raising interest rates.

"Automobile exports seem to be recovering faster than expected, as the reduced U.S. auto tariff rate gave Japanese automakers some price competitiveness, also helped by a weaker yen," Daiwa Institute of Research economist Koki Akimoto said.

"Looking ahead, however, signs of weakness in the U.S. labour market could weigh on auto demand, meaning the latest momentum in Japan's car exports may not last," Akimoto added.

Japan's total exports by value rose 6.1% year-on-year last month, rising for the third consecutive month after a 3.6% gain in October. It outpaced a median market forecast for a 4.8% increase.

Exports to the United States rose 8.8% in November from a year earlier, with shipments of automobiles rising 1.5% and those of pharmaceuticals more than doubling.

Exports to Asia and to Europe rose 4.5% and 19.6%, respectively, while those to China were down 2.4%, the data showed.

Imports grew 1.3% last month year-on-year, compared with market forecasts for a 2.5% increase.

As a result, Japan ran a trade surplus of 322.2 billion yen ($2.08 billion) in November, much larger than the forecast of 71.2 billion yen. It was the first trade surplus in five months, with the trade balance with the U.S. turning positive for the first time in seven months.

FOURTH-QUARTER ECONOMIC GROWTH EXPECTED

Japan's economy shrank in the third quarter as exports slumped under the weight of U.S. tariffs, but analysts expect growth to rebound in the current quarter.

The initial shock from higher tariffs proved milder than feared, as Japanese exporters absorbed the tariff costs to stay competitive.

Some relief came after the U.S. and Japan formalised a trade agreement in September that implemented a baseline 15% tariff on nearly all U.S. imports from Japan, down from an initial 27.5% on autos and 25% on most other goods.

Adding to positive sentiment, a closely watched Bank of Japan survey showed on Monday that big Japanese manufacturers' business sentiment hit a four-year high in the three months to December.

With concerns over tariffs easing, the BOJ is widely expected to raise its short-term policy rate to 0.75% from 0.5% later this week, although the pace of future rate hikes remains unclear.

Daiwa's Akimoto said investors should pay attention to risks of a slowdown in U.S. consumption driven by potential inflation from higher import costs.

"Initially, the tariffs were absorbed by exporters and dealers through price reductions, but that practice is shifting, not only for imports from Japan but elsewhere. If this trend accelerates inflation, it could drag down U.S. domestic demand," he said.

($1 = 154.7800 yen)

Source: Reuters