TOKYO Japan's exports unexpectedly shrank in June for the first time in nearly five years as shipments to Asian emerging markets sputtered after sustaining growth through the first year of the global credit crisis.
Exports to Asia grew at their weakest pace in three years with demand from China, Japan's biggest customer, growing at less than half the pace of May.
Shipments to the United States and Europe shrank at the fastest pace since 2003 and 2002, respectively, as auto sales tumbled.
China and other emerging markets have largely escaped the initial impact of the global credit crisis triggered by U.S. mortgage defaults. But with Asia's main export markets in Europe and North America reeling from bank failures and a lending squeeze, a global slump looks increasingly likely.
"Exports to many Asian countries fell from the previous year, which suggests intra-regional trade in Asia may be losing momentum," said Maiko Noguchi, senior economist at Daiwa Securities SBMC.
"If the slowdown in the United States and Europe continues, that will affect Asian economies. Demand from emerging economies alone will not be enough to lead export growth," she said.
Japan's exports fell 1.7 percent in June from a year earlier, marking the first fall in 55 months. Economists who had forecast a 3.8 percent rise.
CHINA, INDIA, BRAZIL
Shipments to Asia, which make up about half of total exports, rose 1.5 percent from a year earlier, the smallest gain since May 2005, although a sharp drop in ship sales -- which tend to be volatile -- may have skewed the data.
China-bound exports rose 5.1 percent, compared with a 12.2 percent rise in May.
Exports to the United States fell 15.4 percent, the biggest drop since November 2003. Those to the European Union were also down 11.2 percent, the largest fall since March 2002.
Exports to India, Asia's third-largest economy, and Brazil also slowed when compared with first half.
Companies are feeling the pinch. Japanese auto giant Toyota Motor Corp. (7203.T) is expected to revise down its global sales forecast for 2008 this month to factor in a sharp downturn in U.S. demand for light trucks.
The decline in exports, combined with a rise in imports, slashed Japan's June trade surplus to 138.6 billion yen ($1.28 billion), down 88.9 percent from a year earlier.
"The data suggests that the contribution of net exports to GDP in April-June will probably turn out as zero or negative," said Junko Nishioka, an economist at the Royal Bank of Scotland.
"Given weakness in personal consumption and capital spending, the question now is not whether GDP has contracted in the second quarter, but how much it has contracted."
The government has already conceded that the economy may be approaching a turning point after the longest expansion in its postwar history.
Just last week, the central bank cut its economic growth forecast for the year to March 2009 to 1.2 percent, which would be the weakest in six years, and predicted the highest inflation in a decade.
If demand from emerging markets continues to falter, the Bank of Japan may have to cut its growth forecast again, said Atsushi Mizuno, considered as one of the most hawkish members of the central bank's policy board.
"The fog hanging over Japan's economy is unlikely to clear any time soon," Mizuno said in speech to business leaders, pointing to the negative impact of rising costs for energy and raw materials.
He also told a news conference that he was more concerned about downside risks to the economy than inflation.
Swap contracts are pricing in about a 20 percent chance of a Japanese rate rise by the end of this year. <ID:nT178013>
"It is certain that Mizuno's comments today suggest that the timing for a rate hike could be later than expected, given that he said a recovery in the U.S. economy may be delayed until 2010," Takeshi Minami, chief economist at Norinchukin Research Institute, said.
(Additional reporting by Hideyuki Sano in Aomori; editing by Tomasz Janowski)