International
Japan's trade surplus fell in July as motor vehicle exports slowed; Car industry dependent on exports as domestic sales remain at 30-year low
By Finfacts Team
Aug 22, 2007, 06:45

Indian Prime Minister, Dr. Manmohan Singh with the Prime Minister of Japan, Shinzo Abe at a Japanese business delegation meeting, in New Delhi on August 21, 2007.

Japan's trade surplus fell as motor vehicle exports slowed, renewing concerns that growth in the world's second-largest economy may be contracting.

The surplus fell 21.1% in July from a year earlier to ¥671.2 billion (€4.3 billion; $5.9 billion), the first decline since January, the Finance Ministry said in Tokyo today.

Export growth to the US market fell to 1.3%, a fifth of the rate of the previous month, reflecting the impact that the recession in the US housing market may be having on consumer spending on cars and electronics. The yen has risen 3.7% against the US dollar this month, which may further impact exports.

Japanese car manufacturers in particular, are particularly dependent on export growth as domestic car sales have fallen every month in the past fifteen and in March 2007, car sales in Japan fell to a 30-year low.

Exports rose 11.7% to ¥7.06 trillion yen in July and besides the US market, sales to Europe and China also slowed.

Imports rose 16.9% to a record  ¥6.39 trillion yen, as the weak yen pushed up the cost of oil. July oil prices in yen terms rose 8.7% more than the same month a year earlier and the highest since September.

Exports to Europe rose 13.1% in July, the slowest rate in three months, according to today's Finance Ministry report while shipments to China expanded 20.6%, also the weakest since April.

Growth in car exports fell by half to 12.8%. The Japanese government said the earthquake last month may have reduced car exports by 40,000 and 50,000 units, less than a tenth of total vehicle shipments.

Honda Motor Co.'s car exports fell for the first time in more than a year in June, according its most recent figures. Japan's car makers make as much as 65% of their operating profit from North America.

Last week, it was reported that Japan's economic growth almost stalled in the second quarter, making it unlikely that the Bank of Japan will raise its key interest rate at its Aug 22-23 meeting to 0.75% - the highest level since 1995 - from 0.50%. The global credit crunch also lends support to this view.

The Bank of Japan's interest rate decision will be announced on Thursday.