Japan exports rebound on China chip-making demand; Trump tariff risks loom

10:06 pm Tuesday, November 19th, 2024

By Makiko Yamazaki

TOKYO (Reuters) -Japan’s exports expanded faster than expected in October led by a pick-up in chip equipment demand in China, though fears persist over potential U.S. protectionist trade policies that could hamper future shipments.

Japanese businesses are weighing the impact of new and potentially hefty tariffs promised by U.S. President-elect Donald Trump that could disrupt international trade.

Total exports in October rose 3.1% from a year earlier, data from the Ministry of Finance showed on Wednesday, rebounding from a 1.7% drop in September and outpacing a median forecast in a Reuters poll of a 2.2% increase.

Exports to China led the recovery with a 1.5% gain due to strong demand for chip-making equipment, while those to the United States, Japan’s largest export destination, were down 6.2% on weak auto shipments, the data showed.

Kazuma Kishikawa, economist at Daiwa Institute of Research, warned that global demand remains weak. “In particular, U.S.-bound shipments are likely to take months to recover as it would take time for interest rate cuts to start to lift the economy,” he said.

Imports in October grew 0.4% from a year earlier, compared with market forecasts for a 0.3% decrease.

That resulted in a trade deficit of 461.2 billion yen ($2.98 billion) in October, compared with the forecast of a deficit of 360.4 billion yen.

Shunsuke Kobayashi, chief economist at Mizuho Securities, estimated that a proposed 10% tariff on all U.S. imports could push down Japan’s gross domestic product by 0.13%, and another 0.12% if a potential 60% levy on Chinese-made products triggers retaliatory tariffs from China.

“Trump’s policy pledges, if implemented, could affect Japan through various channels and increase uncertainties, which in turn make Japanese businesses cautious about fresh investments,” a government official said on condition of anonymity.

The official pointed out that Japan is particularly susceptible as manufacturing accounts for a whopping 20% of the economy.

Meanwhile, Daiwa’s Kishikawa said that higher tariffs on China could potentially help Japan boost its share in the United States. “If that’s the case, the damage may not be so large as feared,” he said.

Japan is seeing growing signs of a recovery in domestic demand. Last week’s GDP data for the July-September quarter showed a stronger-than-expected pick-up in private consumption backed by rising wages.

Bank of Japan Governor Kazuo Ueda said on Monday that the economy was progressing towards sustained wages-driven inflation, leaving open the chance of another interest rate hike as early as next month.

($1 = 154.6700 yen)

(Reporting by Makiko Yamazaki; Editing by Muralikumar Anantharaman and Jacqueline Wong)