Japan's record trade deficit highlights weakening Chinese demand

Mon Feb 20, 2012 4:00am EST
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By Rie Ishiguro

TOKYO (Reuters) - Japan logged a record trade deficit with China in January as exports dropped by a fifth, underscoring concerns about how sharply China is slowing and its ability to buffer a frail global economy against European turmoil.

The 20.1 percent annual slump in exports to China, Japan's main export market, condemned Tokyo to a record monthly trade deficit, stark evidence of the pain from a firm yen, the global slowdown and fuel imports to make up for idled nuclear plants.

Japan's shortfall with China was 587.9 billion yen ($7.4 billion), 40 percent of the total trade deficit for January, Japanese finance ministry data showed.

While the drop in exports was exacerbated by an early Lunar New Year holiday hitting shipments of steel and other manufacturing inputs, it was still the fourth straight month the Japanese exports to China have fallen in annual terms.

"Chinese authorities may already be worrying about weakening demand," said Mari Iwashita, chief market economist at SMBC Nikko Securities, pointing to Saturday's policy easing with a 50 basis point cut in banks' reserve requirement ratio, the amount of cash banks must hold in reserves.

The move by the Chinese central bank will boost lending capacity by an estimated 350 billion to 400 billion yuan ($55.6-63.5 billion) in a bid to crank up credit creation.

The Chinese Lunar New Year holiday, which fell in late January this year but in early February last year, pushed down what was already declining demand in China, with Japanese exports falling for almost all items, a MOF official said.

Chinese data shows sharp falls in imports from its main trading partners in January, consistent with the Lunar New Year distorting regular trade, but it also shows import demand had been slowing in the final quarter of 2011.   Continued...

A man is reflected in an electronic board displaying foreign currency rates against the Japanese yen and the Japanese government bond outside a brokerage firm in Tokyo February 20, 2012. Japan's Nikkei share average climbed above its 1-year moving average on Monday after China eased policy to boost growth, while market players looked to a European meeting later in the day to seal a long-awaited Greek bailout. REUTERS/Yuriko Nakao