"The export data was not overly bad, but exports to China were relatively weak when you consider the steep decline in the yen should be boosting exports"
- Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch
Shipments from the world's third largest economy surged 7.4% in June from a year earlier, led by a significant depreciation of the Japanese Yen. Nonetheless, even a strong boost from a weaker domestic currency may not be enough to protect Japanese exporters from slowing demand in Japan's biggest trading partner- China. Shipments to China rose just 4.8% annually in June, almost twice less than an 8.3% gain in May. A series of latest reports are reflecting weakness in the Chinese economy, which decelerated for a second consecutive quarter in the beginning of this year, while manufacturing activity shrank for a third month in a row in July.
The hawkish Prime Minister Shinzo Abe just received a stronger mandate for his three-arrowed strategy, also known as "Abenomics", aimed at reviving economic growth from its 15-year bout of deflation and weak capital inflows, as his party won the upper house elections. Hence, one of the key aspects of his policy is weak domestic currency, slowing demand from the neighbouring China is likely to be a major concern for the Japanese government. Since the announcement of aggressive stimulus from the Bank of Japan, the Japanese currency lost almost 15%, and further depreciation is widely expected, as policy makers are constantly assuring market participants in their readiness to reach the 2% inflation target and double the monetary base within two years.
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