TOKYO, April 23 - Growth in Japanese exports slowed to a crawl in March due to uncertainty over the effects of the Iraq war and Asia's SARS outbreak, dealing a blow to one of the domestic economy's few strong points. Government figures on Wednesday showed year-on-year export growth in March of just 0.7 percent, compared with 7.6 percent the previous month and 19 percent last November, as demand for Japanese cars, steel and machinery trailed off. Exports, especially to the voracious Chinese market, have kept the Japanese economy afloat in recent months, offsetting weak demand at home. Analysts are concerned that if this prop is removed, Japan may have little else to rely on.
"The data show that exports are deteriorating, especially exports to the United States. European exports are relatively strong but exports to Asia are also slowly falling," said Takeshi Minami, a strategist at UFJ Tsubasa Securities. "Imports remain strong but a further deterioration in exports could depress domestic manufacturers and eventually have an effect on the overall Japanese economy." Exports to Asia grew by 11.7 percent in March, half the rate of the previous month and the lowest monthly increase since April 2002. Those to the U.S. fell for the third straight month. The slowdown in exports, coupled with a rise in oil prices that pushed up the cost of imports, cut Japan's trade surplus by 23 percent compared with March 2002 to 965.25 billion yen ($8.05 billion), the Ministry of Finance said. A survey of 14 economists had forecast a surplus of 1.0831 trillion yen. For the financial year ended March 31, the trade surplus was 9.6795 trillion yen, 36.6 percent higher than the previous year. The figures cover a period of tension up to the March 20 outbreak of the Iraq war, when uncertainty over its effects on the world economy was highest and oil prices were rising, upping the costs to Japanese firms, which are dependent on imported oil. Whether the end of the conflict will pep up exports remains to be seen, analysts said. Data last week showed that U.S. retail sales in March rose at their fastest pace in 17 months and consumer sentiment improved markedly in April.
CHINA'S SARS SHADOW "It's unrealistic to expect a continued export-driven recovery in the Japanese economy," said Seiji Adachi, an economist at Credit Suisse First Boston. "It should be noted that plans to boost capital expenditure have mainly been in the export-oriented areas, such as machinery tools and autos, so the outlook for such spending is becoming more uncertain." Much of the focus for Japan is now shifting away from its traditional market of the United States to China, which in the year to March became Japan's largest source of imports for the first time, and which is a major manufacturing base for Japanese companies. Exports to China in March rose 36 percent compared with a year ago. Those to the U.S. fell 15.5 percent.
Japan's 15 years of trade deficits with China are on the way to becoming a surplus, a MOF official told a briefing, noting that in March the deficit shrank by 21 percent. However the shadow of the SARS virus is looming large over the China market, adding to concerns over the prospects for Japan's exports. Japan's biggest business lobby, the Japan Business Federation (Keidanren), has postponed a mid-May trip to China by officials due to concerns about the disease, while the Japan Chamber of Commerce and Industry has also put off a trip by its chairman. "Looking forward, the biggest worry is to what extent Japan's exports to Asia suffer in the next few months due to SARS," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Securities. China's economy could contract by two percent in the second quarter of 2003 because of the worsening SARS situation, JP Morgan Chase said in a report on Tuesday. In addition, many Japanese companies have production sites in China where they can increase their competitiveness by making use of China's huge pool of low-cost workers. If SARS forces plants to shut, Japan's industries face the prospect of losing output and profits.//