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Economy Watch
Economy Watch follows the progress of the world economy and offers you our weekly picks. Be sure to visit for the weekly updates.
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March 25 Updates
| Japan’s Exports Grow at Fastest Pace in 30 Years
Japan’s exports climbed at the fastest pace in 30 years in February as global trade recovered from the worst postwar recession, increasing prospects for a sustained economic rebound in the nation.
Shipments abroad increased 45.3 percent from a year earlier, helping the trade surplus expand the most since 1982, the Finance Ministry said today in Tokyo. At 5.1 trillion yen ($57 billion), the value of exports remains about a third lower than the March 2008 peak of 7.7 trillion yen.
Demand for Japanese goods rose to all regions for the first time since August 2007, the report showed, fueling sales for companies from Komatsu Ltd. to Mitsubishi Electric Corp. The trade revival has spurred factory production for 11 months, gains that economist Akiyoshi Takumori expects will continue.
“Before, exports were rising mostly because of Asia, but now the U.S. economy is rebounding, too. That’s definitely a good sign,” said Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “It’s very unlikely that Japan’s recovery will falter this year.”
The surge was partly due to a favourable year-on-year comparison. In February 2009, shipments abroad tumbled a record 49.4 percent as global trade froze following the collapse of Lehman Brothers Holdings Inc. five months earlier. Exports fell a seasonally adjusted 1.7 percent from January.
Favourable Comparison
Last month’s rebound was driven by Asia, especially China, though the pace of the gains moderated as the Lunar New Year holiday took place in February this year and January in 2009.
Shipments to Asia advanced 55.7 percent in February from a year earlier, compared with a 68.1 percent gain the previous month. Exports to China, Japan’s biggest overseas market, climbed 47.7 percent after rising 79.9 percent in January.
“Asian economies will likely maintain their robust recovery, helping Japan to sustain growth in exports,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo.
Mitsubishi Electric yesterday forecast net income of 25 billion yen in the year ending March 31, reversing its previous estimate for a 20 billion yen loss. The maker of consumer electronics and assembly-line machinery cited demand from Asia, worldwide stimulus and cost cuts.
Komatsu’s Sales
Komatsu, the world’s second-biggest maker of large dump trucks and excavators, expects sales in China to climb between 40 percent and 50 percent in the year starting April 1, Kazuhiko Iwata, president of the company’s mining division, said this month.
Demand in the U.S. also picked up from a year ago. Shipments to the world’s biggest economy surged 50.4 percent in February, the most since May 1984, the ministry said. Sales to Europe rose 19.7 percent, the third consecutive increase.
Imports climbed 29.5 percent, the fastest pace in three years. The trade surplus swelled to 651 billion yen, nine times bigger than the gap a year ago.
The median estimate of 22 analysts surveyed was for 560.6 billion yen.
Recent reports show the rebound is spreading to the domestic economy. The unemployment rate fell to a 10-month low of 4.9 percent in January, bolstering consumer confidence. Service demand rose the most in more than a decade.
Rebound Spreads
The Japanese government last week raised its assessment of the economy for the first time in eight months, saying the recovery is beginning to spur corporate earnings, home building and consumer spending.
Some Bank of Japan board members said they had “shifted slightly upward” their view of the economy because of exports to Asia, February meeting minutes showed yesterday.
Still, the rebound hasn’t been fast enough to shake off deflation, which is squeezing profit margins and discouraging spending. The central bank last week doubled a credit program to 20 trillion yen to help spur consumer prices that have fallen for 11 consecutive months.
“Weak demand is being reflected in continuing price declines,” said Chiwoong Lee, a senior economist at Goldman Sachs Group Inc. in Tokyo. “With the exception of consumer durables, which have support from fiscal policies such as eco points, consumption is lackluster and exerting downward pressure on prices.”
Economist warns against China bashing from Washington over trade
The United States needs to face up to its own imbalances rather than engage in more China bashing over trade, said world-renowned economist Stephen Roach.
"The West, especially the United States, needs to take a long hard look in the mirror and face up to its own imbalances. Hypocrisy is not a recipe for global statesmanship," wrote Roach in Singapore's leading financial daily Business Times this week.
As U.S. congress and the White House look toward the mid-term elections of 2010, Washington could well up the ante on China bashing -- moving from a rhetorical assault to widespread trade sanctions, predicted Roach, chairman of Morgan Stanley Asia.
He noted that the United States has already imposed trade sanctions on Chinese exports of tyres, coated paper product and steel piping and grating in recent month.
Roach argued that the expected salvo from Washington was apparently built on hypocrisy as the United States itself should also be held accountable for the global economic imbalances.
Meaningful progress on global rebalancing could not occur without progress by both China and the United States and that China has a more optimistic prospect of achieving rebalancing, he said.
"There is good reason to believe that China ... is about to take dramatic steps in rebalancing its domestic economy in a fashion that would provide a sustained and meaningful reduction in its current account surplus."
China viewed the recent crisis and recession as an unmistakable wake-up call, which left the country with little choice other than to shift the sources of its GDP growth from external to internal markets, he said.
However, it was hard to be sanguine about the outlook for America's saving and current account imbalance.
"The United States, with its massive shortfall in domestic saving, has come to rely heavily on surplus saving from abroad to fund economic growth. And it must run massive current account deficits in order to attract that capital," he said.
All nations need to be accountable for the role they need to play in driving a long overdue global rebalancing, said Roach. "It would be the height of folly to try and force China into a counter-productive approach, especially since it appears to be taking its own rebalancing agenda very seriously."
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