Japan’s exports rise 2% in September

The external trade data for September came out better than expected. Exports rose 2.0% MoM sa, significantly faster than August’s 0.3%. Trade deficit improved to JPY 21.8bn, the narrowest over six months since April. As exports have almost returned to the pre-earthquake levels as of August (in real and seasonally-adjusted terms) and the supply restoration in the manufacturing industry has been largely complete, the continued rise in exports in September is a positive sign of a sustainable recovery. This should somewhat alleviate market worries about a sharp and immediate slowdown in Japan’s exports and overall economic growth against the headwinds of weaker global demand and a persistently strong yen.

That said, policymakers in Japan would maintain a vigilant stance. With the USD/JPY rate threatening to break the 76 mark in recent trading days, the finance minister is once again warning of currency intervention. The Bank of Japan is widely expected to downgrade its GDP forecast for fiscal 2011-2012 at this week’s monetary policy meeting (Thursday), citing the downside risk to global growth as the key reason. It would be no surprise for the government and the central bank to take further steps to intervene the yen and ease monetary policy if there is disappointment in Europe’s upcoming new plan to tackle debt crisis, which can cause a risk-averse reaction in global asset market and negatively impact the outlook of global economy.

The yen’s status of a safe haven currency remains intact, as reflected by the narrowing trade deficit and the sustained surplus in current account balance. In addition, Japanese policymakers may also closely watch the Fed moves in the coming months against the context of renewed talks of US QE3.