Japan’s Merchandise Trade Balance surplus narrowed to 185.7 billion yen in August as overseas shrank -36% from the previous year, marking the 11th consecutive contraction. Economists had expected a greater decline, calling for a 157 billion result. Export volumes shrank for the first time since May, with shipments to the European Union leading the way lower. The data may be hinting that the $12 trillion or so in fiscal stimulus spent by the world’s governments to stabilize growth that had boosted demand for Japanese products may be running out of steam. Indeed Bank of Japan chief Maasaki Shirakawa expressed concern that his country’s economic rebound may survive once worldwide expansionary policies are reversed. A stronger currency may have also contributed to the outcome: the Yen strengthened by 1.9% in trade-weighted terms in August, the most since January. While this would typically raise fears that formerly activist Japanese policymakers will intervene into the markets to drive down the currency, incoming DPJ Finance Minister Hirohisa Fujii said last week that it was not the government’s job to set exchange rates and that a stronger Yen had its advantages, clearly signaling that Japanese authorities will stand aside from here. The trade balance is expected to continue to contract in the months, with a survey of economists polled by Bloomberg forecasting that net exports will add on average 2.4% to GDP through this year and in 2010, the least since 2001.
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