Japan Exports and Trade Balance vs. the Yen; Abenomics in Review

Despite the widely touted success of Abenomics, a few charts will prove success is all hype and no reality. Let's start with a chart of the Yen.

$XJY Yen Monthly



click on any chart for sharper image

The Yen went on a tear from mid-2007 to mid-2011, rising from 80.55 to 132.18. Since then, the Yen declined to and 94.83 and is currently at 98.26. The Yen was in this general area, at times, in 2004, 2005, 2008, 2009, and 2014.

One intent of Abenomics was to devalue the Yen to aid exports. How did that work out?

Japan Left Behind

Bloomberg reports Japan’s Export-Champ Days Are Left Behind.

The CHART OF THE DAY shows the value of Japan’s exports is 23 percent below a March 2008 peak, even as those of South Korea, the U.S. and Germany have grown. The yen has lost 16 percent in value against the dollar since Prime Minister Shinzo Abe took office in December 2012. That hasn’t been enough to spur growth in outbound shipments.

Japan’s government and central bank have blamed weak overseas demand, especially in emerging markets, for export sluggishness. This weakness is negative for an economy that suffered a blow to domestic demand from an April sales-tax increase.

“Japan is being left behind in the export recovery mainly because Japanese companies accelerated the shift of production abroad when the yen appreciated after the Lehman shock,” said Toru Suehiro, a market economist at Mizuho Securities Co. in Tokyo. “The loss of global market presence by Japan’s companies, especially electronic appliance makers, is also a factor.”

The impact of the move overseas by Japanese companies is striking in the U.S. automobile market, said Suehiro. U.S. sales for Japanese automakers in the six months through June rose 6.2 percent from a year earlier to 3.04 million, according to researcher Autodata Corp. Auto exports from Japan to the U.S. for the same period were down 8.5 percent, according to finance ministry data.

No Export Recovery for Japan (Chart of the Day)



Abenomics Flame-Out

What about exports vs. imports, a measure of trade deficits or surplus? Wolf Richter provides the answer in The Flame-Out Of Abenomics, In One Crucial Chart. Richter reports ...

Abenomics, the new economic religion of Japan, has kept some of its promises: It created inflation while wages stagnated, thus whittling down real incomes, further squeezed by the broad consumption tax hike. It devalued the yen by 25%, thus vaporizing a quarter of the wealth of the Japanese without having to tell them directly. And to make up for the tax increase on consumers, Abenomics elegantly cut taxes for Japan Inc. Grudging respect is due Prime Minister Shinzo Abe for these noble accomplishments.

In other areas, his record is spotty. One of the goals of his policies was to fire up exports by making them cheaper overseas and reduce imports by making them more expensive to consumers and businesses at home. It would crank up Japan's manufacturing sector and lead to a trade surplus that would inflate GDP, make Abe a hero, and save Japan.

Exports and trade surpluses have been vital to the Japanese economy. And reconstituting them has been a cornerstone of Abenomics. But that plan has gone to heck.

Not step by step, gradually over time, but in monthly leaps, whose size surprised even Abenomics-cynics like me. And the Ministry of Finance rubbed it in today when it published the trade statistics for June.

Exports, instead of soaring due to the watered-down yen, dropped 2.0% from a year ago to ¥5.94 trillion. Imports, instead of dropping due to consumers being squeezed by higher prices and stagnating incomes, soared 8.4% to ¥6.761 trillion. The resulting goods trade deficit jumped to ¥822.2 billion.

It was the worst trade deficit for any June ever. It was over four times as bad as last year's "worst June deficit ever." In June 2012, Japan still had a surplus. Historically, June is one of the better months for Japanese trade. But that surplus in June 2012 was Japan's last. What followed were 24 months of relentlessly deteriorating trade deficits. The worst series in Japan's recorded history (far ahead of the second-worst, the 14-month period in 1979-1980).

For the first six months this year, compared to the same period last year, the trade deficit soared 57%!

Here is what the flaming success of Abenomics looks like, boiled down to one chart:



The debacle was spread across the board, starting with its largest trading partner, both in terms of exports and imports, China. Since about one-third of Japan's exports to China get transshipped through Hong Kong, I combine them. So exports to China and Hong Kong edged up 1.6%. But imports from them jumped 10.6%. And the trade surplus in 2013 of ¥57 billion turned into a trade deficit of ¥63 billion. That's a deterioration of ¥120 billion. Even exports to the US, its second largest trade partner, declined 2.7%, while imports from the US rose 6.8%.

The export declines were spread across the largest categories: transportation equipment (cars, trucks, etc., which account for nearly a quarter of all exports) dropped -0.6%; machinery (about a fifth of all exports) -0.4%; electrical machinery (semiconductors, audio-video equipment, batteries, etc.) -5.1%; manufactured goods (steel products, etc.) -0.2%.

And imports rose across the largest categories. Mineral fuels (petroleum, LNG, coal, etc.), which make up nearly one-third of all imports, rose 8.3%.

Spotlight on Energy and Food

In the wake of Japan's nuclear disaster at Fukushima that closed multiple reactors, Japan has been very reliant on energy imports.

A falling yen certainly does not help.

Spotlight on Food

According to the USDA, Japan imports about 60% of its food.

And some of what Japan does produce is contaminated, and will be for thousands of years. See the July 15, 2014 report: TEPCO Failed To Disclose Crops Over 20KM From Fukushima Were Contaminated

Richter notes "[Japanese consumer] purchasing power is down by 3.6% year over year, for all items, including services; Purchasing power is down 5.6% for goods.

Abe wanted higher prices and got them, but not where he wanted them. Abenomics was supposed to help exports (but didn't), job creation (but didn't), manufacturing output (but didn't), real wages (but didn't).

Simply put, Abenomics has been a huge failure from every angle. Yet, economists are in near-universal praise because prices are rising. That's Keynesian idiocy at its finest.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com