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Cablegate: Japan Sees Dramatic Downturn in October Export Data

VZCZCXRO7144
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #3302/01 3380901
ZNR UUUUU ZZH
P 030901Z DEC 08
FM AMEMBASSY TOKYO
TO RUCPDOC/USDOC WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 9182
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 6649
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2905
RUEHJA/AMEMBASSY JAKARTA PRIORITY 4396
RUEHKL/AMEMBASSY KUALA LUMPUR PRIORITY 1912
RUEHME/AMEMBASSY MEXICO PRIORITY 0559
RUEHOT/AMEMBASSY OTTAWA PRIORITY 9750
RUEHUL/AMEMBASSY SEOUL PRIORITY 2645
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 7278
RUEHFK/AMCONSUL FUKUOKA PRIORITY 1242
RUEHHK/AMCONSUL HONG KONG PRIORITY 6639
RUEHNAG/AMCONSUL NAGOYA PRIORITY 9245
RUEHNH/AMCONSUL NAHA PRIORITY 3603
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 5033
RUEHKSO/AMCONSUL SAPPORO PRIORITY 1813
RUEHGV/USMISSION GENEVA PRIORITY 3443
RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 02 TOKYO 003302

SENSITIVE
SIPDIS

STATE FOR EAP/J
PASS USTR FOR WCUTLER, MBEEMAN

E.O. 12958: N/A
TAGS: ETRD ECON JA
SUBJECT: JAPAN SEES DRAMATIC DOWNTURN IN OCTOBER EXPORT DATA

-------
Summary
-------

1. (SBU) Reflecting reduced demand for Japan's key exports in
the global economic slowdown, Japanese goods exports fell in
October, according to Ministry of Finance trade data released
November 20. Exports were down 7.7 percent year-on-year,
with the largest declines in automobiles, semiconductors, and
chemicals. Concurrently, imports were up 7.4 percent,
primarily the result of higher year-on-year oil prices, and
resulting in a JPY 63.9 billion (approx. US$670 million, at
US$1=JPY95) trade deficit for the month. Japan's August
deficit of JPY 332 billion (US$3.5 billion) was the first
non-January monthly deficit in 26 years, and this latest
deficit is Japan's first October deficit in 28 years. End
summary.

-------------------
Sectoral Components
-------------------

2. (U) Japan's most important export sectors saw the greatest
losses in October. Transportation equipment (autos),
electrical machinery, and chemicals collectively represent
more than half (52.5 percent) of all Japanese exports, and
each category saw double-digit declines. These three
categories together contributed 88 percent of the overall
decline in exports for the month. Iron and steel product
exports, on the other hand, saw a 22 percent increase.

3. (U) Dependent on foreign sources for roughly 96 percent of
its energy needs, Japan's trade balance has been affected
dramatically by rising commodity prices. Slightly over one
third of all Japanese imports consist of mineral fuels, with
petroleum constituting roughly 19 percent total imports.
Interestingly, while the GOJ has often raised concerns about
food security in a trade policy context, Japan imports
approximately 60 percent of the food it needs, and the value
of imported foodstuffs are only 23 percent of what Japan
spends to import mineral fuel. Japan is highly dependent on
these and other imported commodities, and their higher prices
have driven up Japanese imports, as measured by value, while
imports of manufactured goods have fallen.

Select Sectoral Data Highlights:
--------------------------------

Category Value Change Share of Total
(JPY 100 bil) (y-on-y, pct) (percent)
Exports
Total 6,926 -7.7 100
Transport Equipment 1,668 -13.1 24.1
- Motor Vehicles 1,137 -15.0 16.4
Electrical Machinery 1,378 -10.6 19.9
- Semiconductors 405 -12.6 5.9
Chemicals 595 -14.4 8.5
Iron and Steel Products 420 22.5 6.1

Imports
Total 6,990 7.4 100
Mineral Fuels 2,411 34.2 34.5
- Petroleum 1,333 23.7 19.1
Foodstuffs 563 9.4 8.1
Electrical Machinery 740 -10.1 10.6
Transport Equipment 159 -35.2 2.3

---------------------
Geographic Components
---------------------


TOKYO 00003302 002 OF 002


4. (U) Japan still enjoyed substantial trade surpluses with
North America, Asia, and Western Europe, but deficits with
the Middle East and Australia were sufficient to push Japan's
overall trade into deficit.

5. (U) With North America, trade in both directions fell,
although Japanese imports from Canada grew. Overall, Japan
still registered a JPY 506 billion (US$5.3 billion) surplus
with North America. Exports and imports to/from the U.S.
fell by 19 and 11 percent, respectively. Japan also saw
exports and imports with Western Europe fall at comparable
rates, leaving Japan's net surplus with Europe at JPY 296
billion (US$3.1 billion).

6. (U) In Asia, trade with China (PRC and HKG aggregated)
represented roughly 46 percent of Japan's total two-way
trade, and Japan enjoyed a small net surplus of roughly JPY
90 billion (US$950 million). Japan ran a modest surplus with
East Asia, reflecting surpluses and larger trade volumes with
partners like Korea, Taiwan, and Singapore, which outweighed
deficits with other regional trading partners such as
Indonesia and Malaysia. A decline of 4.0 percent in exports
to Asia was led by double-digit falls with Korea, Taiwan and
Hong Kong. A 5.1 percent increase in imports was driven by a
2.9 percent increase from China and nearly 50 percent
increases from both India and Vietnam.

7. (U) In other regions, Japan's net deficit with the Middle
East topped JPY 1.13 trillion (US$11.8 billion), as the
October price of oil was reportedly 34 percent higher than a
year earlier. Japan's imports from Australia also shot up 49
percent to JPY 477 billion (US$5 billion), passing Saudi
Arabia and making Australia Japan's third largest source of
imports after China and the U.S.

Select Geographic Data Highlights:
----------------------------------

Partner Exports Imports
(Value JPY 100 bil (y-on-y percent change))

North America 1,319 (-18.2) 813 (-7.2)
- USA 1,214 (-19.0) 695 (-11.1)
- Canada 104 (-8.0) 118 ( 24.9)
Western Europe 942 (-17.0) 646 (-10.9)
Asia 3,392 (-4.0) 2,943 ( 5.1)
- China 1,161 (-0.9) 1,389 ( 2.9)
- Hong Kong 332 (-13.7) 13 (-26.4)
- Taiwan 369 (-10.9) 203 ( 1.7)
- South Korea 504 (-11.0) 262 (-7.4)
Middle East 329 ( 11.3) 1,454 ( 24.3)
Australia 153 (-5.5) 477 ( 49.2)

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Comment
-------

8. (SBU) It would be premature, based on the one month's
figures, to draw conclusions about changes to the structure
of Japan's trade balance. However, Japan is relatively
sensitive to both the downturn in demand in its key sectors
and to high commodity prices. Already entering a recession
before the current international economic turmoil, and unable
to rely on exports to drive growth, Japan is caught in a
tight spot that could increase public demand for economic
leadership and put pressure on the government and political
parties. Unfortunately, Japan's domestic political situation
has delayed the government's ability to push through a second
stimulus package, and its large debt may limit the size of
any future fiscal stimulus measures. End comment.
SCHIEFFER

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