Japan’s exports rose in May at the fastest annual rate in more than two years, in a hopeful sign for Prime Minister Shinzo Abe’s much-doubted economic policies, which have come to be known as Abenomics.
Calculated in yen, exports climbed 10.1 percent in May from a year earlier according to data released by Japan's finance ministry, outstripping a 6.5 percent estimate by Reuters analysts.
The stronger-than-expected jump in exports should build confidence in the leader's policies, which have had mixed results so far in reviving Japan’s economy after two decades of stagnation. Japan’s central bank aims to end deflation, or falling prices, by boosting the money supply, which has weakened the value of Japanese yen against the dollar and other currencies, paving the way for higher profits for manufacturers and exporters.
On the other hand, a sharply weaker yen, which has depreciated by about 12 percent in the last six months, has increased Japan’s imports, which saw a 10 percent rise from a year earlier, leading to a 994 billion yen ($10.4 billion) trade deficit.
This has led to a reversal in the trend of trade surpluses for the country, as Japan now imports more oil and gas in the aftermath of the Fukushima disaster, which shuttered its nuclear reactors.
However, analysts quoted by Reuters said that the overall result of a weaker yen was positive, as higher export revenues translate into higher exporter earnings, which would boost investment and workers’ bonuses positively influencing the economy.
“We can certainly say that exports are headed in the right direction,” Shuji Tonouchi, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, told Reuters. “The breakdown shows that export volumes are still a little weak. Demand from the United States is doing well and Japan's trade deficit should eventually shrink.”
Japanese shipments to the U.S. rose 16.3 percent from a year earlier, while exports to China rose 8.3 percent, the fastest gain since February 2011, the Reuters report said.
Proponents of Abenomics say they expect an economic recovery by mid-year, riding on a wave of inflation and increasing demand, wages and employment. But, skeptics remain doubtful that higher profits will encourage companies to raise wages and increase investments in projects.
"Individual companies may offer wage increases, but because of demographics it is simply impossible to increase the total amount that is paid out in wages," Seki Obata, Keio University business school professor and author told Reuters in April. "On the contrary, that amount will shrink."
So far consumer prices have refused to go up as Abe’s government tries to achieve an inflation goal of 2 percent. And, in recent weeks, Japanese financial markets have been extremely volatile with the yen consistently gaining against the dollar and the Nikkei stock index on a roller-coaster, as investors seek safety amid uncertainty over the future of the U.S. Federal Reserve Bank’s bond-buying program.
Gayathri writes about geopolitics and business for International Business Times. She began her career at the Times of India as news coordinator, before moving on to IBTimes...