Japan’s extended exports slump could push BOJ to ease next week

The international cargo terminal at the port in Tokyo. Japanese exports in September slumped 5.2 percent from a year earlier. (Reuters)
Updated 21 October 2019

Japan’s extended exports slump could push BOJ to ease next week

  • Exports to all major regions down
  • Global slowdown, trade protectionism seen as risks for economy

TOKYO: Japan’s exports contracted for a 10th straight month in September, adding to speculation the central bank could ease monetary policy as soon as next week to support an economy hit by a slowdown in global demand.
A bitter Sino-US trade war and slowing growth in China have heightened the risks of a global recession, darkening the outlook for Japan’s economy, the world’s third-largest.
Exports in September slumped 5.2% from a year earlier, Ministry of Finance data showed on Monday, dragged down by car and airplane parts to the United States and semiconductor production equipment to South Korea.
The fall was larger than a 4.0% drop expected by economists and marked the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016.
In volume terms, exports fell 2.3% in the year to September, the second consecutive month of declines.
The extended fall in exports comes after the government lowered its assessment of the economy on Friday, raising a warning flag over weakness in exports.
That, among other factors, has triggered calls from some Japanese policymakers the government is ready to take fiscal measures if extra economic support was needed.
“There is a possibility that there will be another fall in exports hereafter,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.
“Though overall conditions are currently stable, it would become a factor for monetary easing if it did affect Japan’s economy as a whole.”
Markets are rife with speculation the Bank of Japan could ease at its Oct. 30-31 meeting, after it said at its rate review last month it would take a more thorough look at whether rising overseas risks could derail Japan’s fragile economic recovery.
The BOJ will “certainly” reduce short- to medium-term interest rates if it needed to ease monetary policy, Governor Haruhiko Kuroda told Reuters on Saturday.
By region, exports to China, Japan’s biggest trading partner, slipped 6.7% year-on-year in September, down for the seventh month as shipments of auto parts declined, offsetting a rise in those of electronic chips for semiconductors.
Exports to Asia — which account for more than half of Japan’s overall exports — dropped 7.8% in the year to September, falling for the 11th month, hurt by a 18.7% slide in semiconductor manufacturing parts, especially those to South Korea, which has been in a trade dispute with Japan.
Japan’s exports to the United States fell 7.9% in the year to September, weighed down by reduced shipments of cars over 3000cc and aircraft motors and parts.
Imports from the United States slipped 11.6% in September, causing Japan’s trade surplus with the world’s top economy to narrow by 3.5% from a year earlier to 564.1 billion yen ($5.2 billion), the trade data showed.
Washington and Tokyo signed a limited trade deal last month that cuts tariffs on US farm goods, Japanese machine tools and other products while further reducing the threat of higher US car duties.
Japan’s overall imports dropped 1.5% year-on-year, a smaller decline than the median estimate for a 2.8% decrease.
In volume terms, imports gained 6.8% which analysts said was largely because of front-load demand before a nationwide sales tax hike to 10% from 8% which kicked in at the start of this month.
“Going forward, imports are going to decline as consumption will be hurt” by the tax hike, said Takeshi Minami, chief economist at Norinchukin Research Institute.
“The trade deficit is likely going to be reduced over the coming months.”
The trade balance came to a deficit of 123.0 billion yen, versus a 54.0 billion yen surplus seen by economists.


Saudi defense contractor to invest up to $16 million to further localize services

Updated 18 November 2019

Saudi defense contractor to invest up to $16 million to further localize services

DUBAI: Saudi-based defense contractor Middle East Propulsion Company (MEPC) plans to invest between $13 million and $16 million over the next two years to build test cells for aircraft engines and establish new production lines.
These expansion activities should complement the company’s objective to localize high-tech repairs and combine them in one roof for the Saudi defense ministry, which is a major customer, CEO Abdullah Al-Omari told Arab News.
Instead of sending aircraft engines and engines modules overseas for further servicing, thus take up more time before military assets return to actual service, localization not only cuts the turn-around period but also reduces Saudi government spending for the repairs.
“We have accomplished more than 1,600 engine and engine modules [since 2001, they] have been maintained totally in Saudi Arabia,” Al-Omari said at the sidelines of the Dubai Airshow. “The engines consume 45 percent of what you spend on aircraft.”
The company works on 150 to 160 engines and engine modules every year.
MEPC is the first specialized MRO (maintenance, repair and overhaul) company operating in the Middle East, according to its website. It has invested over $26 million during the previous two years for the localization of its MRO services.
“We used to send these parts to outside, it takes 6 months to 24 months sometimes … in case of the Apache engines, minimum turn around is 24 months,” Al-Omari said, but their localization efforts have greatly improved their capability by cutting the turn-around period to only 150 days.
The speed at which MEPC is able to repair engines and modules, boosts the readiness of Saudi military, Al-Omari added.
The company is in talks with major defense contractors, including Honeywell for the Abrams talks and GE T700 engines, for possible tie-ups to further improve their capability, he said.
“Currently there is a potential with the Kuwait army to provide them with similar services [being delivered to the Saudi defense ministry],” Al-Omari said, and expects that cooperation would start “within the next two years or so.”