Japan’s exports fell by the smallest margin in seven months in September in another sign that the pandemic’s hit on global trade is easing.

The value of Japan’s overseas shipments declined 4.9% from a year earlier in September, narrowing from a 14.8% drop in August, the finance ministry said Monday. The improved figure, supported by the biggest gain in exports to China in more than two and a half years, offered an indication that the low point for trade has passed.

Chip-making equipment powered the increase in exports to China, while a jump in car shipments to the U.S. fueled the first gain in exports there in over a year. Still, economists had projected a smaller overall export decline of 2.4%.

Key Insights

  • “China is the biggest driving factor for Japan’s exports at this moment as the economy there makes a quick recovery. But I don’t think China can continue picking up at this pace given what’s happening in the rest of the world as the pandemic continues to weigh on activity,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
  • New Prime Minister Yoshihide Suga faces the challenge of trying to revive the economy after it shrank by a record in the second quarter. His success will greatly depend on exports, a key driver of Japanese growth.
  • Third-quarter growth is unlikely to make up for the depths of declines in the second quarter, an outcome that could put pressure on Suga to compile another stimulus package. Some 85% of economists surveyed by Bloomberg expect a third extra budget before year-end.
  • The economy’s reliance on global trade makes it vulnerable, especially with the virus resurgence in some key trade partners such as Europe and the U.S. “The pandemic is going to keep Japanese companies cautious about hiring, wage growth and business investment,” Minami added.