Japan: Exports and imports were weaker than expected - BBH

Research Team at BBH, notes that today Japan reported October trade and CPI data with both exports and imports were weaker than expected, contracting -10.3% y/y and -16.5% y/y, respectively.  

Key Quotes

“Exports have not risen on a year-over-year basis since September 2015.  Exports of autos, steel, and telecom equipment have been weak.  Exports to the US are off 11.2%, 9.5% lower to Europe, and falling 9.2% to China.  Recall that net exports contributed about 0.5% to Japan's Q3 GDP.  CPI will be reported Friday.”

“Yet these are not the data or information that is driving the market.  It does not matter the precise print of CPI, the fact of the matter there is little new.  The headline rate may move back toward zero (from -0.5%), but this is the result of fresh food, which if excluded, is expected to be nearly steady (-0.4% from -0.5%).  Even when energy is excluded too, the year-over-year rate may rise to 0.1% from zero.”  

“The BOJ intervened last week in the local debt market to buy short-term securities to stabilize the market and resist the upward pressure being exerted by the rise in US rates.  Despite the negative yield environment, Japanese banks recently report strong earnings.  The rise in interest rates is seen as a favorable development among Japanese bank shares too.  The Topix bank index has risen about 27% over the past two weeks.”

“Here in November, the Nikkei is the best performing major index.  It has risen a little more than 3%.  In fairness, the Dow Jones Industrial is up 4%, but the more representative S&P 500 is up 2.6%.  Foreign investors have been significant sellers of Japanese stocks this year and are unwinding short yen hedges.  The weekly data from the MOF suggests foreign investors may be returning.  Foreign investors bought JPY546 bln of Japanese shares in the week through November 11.  It is the third largest net purchases since July 2015.  Because of interest rate differentials and the supply and demand, one is still paid (the points work in favor of the hedger (when swapping yen for dollars).”