Gains in Japan’s exports hold up despite omicron wave

Gains in Japan’s exports narrowed slightly in December to cap a year of robust increases, with the latest figures showing trade strength holding up more than expected despite the omicron wave that has swept the globe.

The value of the country’s overseas shipments rose 17.5% from a year earlier, easing from 20.5% in November, as stellar increases in steel and chipmaking equipment slightly cooled, Finance Ministry data showed Thursday.

Economists had expected an increase of 15.9%. On a seasonally adjusted basis, exports fell 0.2% from the previous month.

The resilience in exports adds to signs the economy probably rebounded in the final quarter of last year before the omicron variant took hold in Japan and overseas. Still, the renewed virus outbreak may cut demand for shipments going forward.

“Omicron has so far hit Europe and the U.S. hardest, but economic activity doesn’t seem to have slowed too much,” said economist Takeshi Minami at Norinchukin Research Institute. “That said, if omicron rages through Asia, we may have renewed supply chain constraints the way we did with delta.”

Vehicle exports rose at the same pace as overall shipments, accelerating sharply from a 4.1% increase in November and indicating that supply-chain snarls were continuing to ease at the end of 2021.

Still, Toyota Motor Corp. is already looking to cut back on its plans to continue with ramped-up production in February. The auto giant will trim output by around 20% due to chip shortages, though output will still be up from a year earlier.

“The outlook for 1Q 2022 isn’t so promising. COVID-19 outbreaks driven by the omicron variant look likely to hit exports. Higher input prices caused by supply-chain snarls could continue to squeeze profits if firms can’t pass the costs on to consumers — damping investment and slowing the recovery,” said Bloomberg economist Yuki Masujima.

Rising COVID-19 cases in Southeast Asia could again set back parts procurement. Japan is also set to impose renewed virus restrictions on more parts of the country including Tokyo, though measures will mainly hit the hospitality sector rather than manufacturers.

Imports rose by more than 40% for the second straight month, inflated by the higher prices caused by a weaker yen. The gains partly reflect the rising cost pressures for Japanese companies, most of which have yet to pass on the burden to consumers out of fear of losing them to competitors.

Higher energy prices may also weigh on consumption at home, with the government trying to ease that burden via subsidies.

With the surge in imports, Japan marked a goods trade deficit of ¥582.4 billion ($5 billion) in December, for the fifth straight month of red ink.

Import prices of crude oil and liquefied natural gas more than doubled, up 116.6% and 100.5%, respectively. The value of coal imports soared 178.4%.

The yen, which is highly dependent on imported energy sources, weakened 9.5% against the dollar from a year earlier, trading at an average of ¥113.95 in December.

Bank of Japan Gov. Haruhiko Kuroda this week maintained his stance that the current weakness in the yen is positive for the overall economy after the central bank adjusted its price views slightly while leaving its main policy settings unchanged.

For the whole of 2021, exports rose 21.5% to ¥83.1 trillion, advancing for the first time in three years. Iron shipments contributed the most, increasing 48.1%.

Imports rose 24.3%, up for the first time in three years, to ¥84.6 trillion, with crude oil prices jumping 49.1%.

Both the export and import figures were the second largest on record, translating into a goods trade deficit of ¥1.5 trillion, falling into the red following a ¥388.3 billion surplus in 2020.