ALARM bells were set ringing in Japan yesterday as official data revealed a sharp slump in the nation's exports last month.
This time, the dismal numbers were not only to the recession-bound eurozone but also to China - the key market for most of Asia's exports - and to other parts of the world.
Exports from other key East Asian economies such as South Korea and Taiwan also slowed sharply, new data showed, while China's own exports severely underperformed expectations in July, adding to fears of a global slowdown.
Nerves were set further on edge as a deputy governor of the Bank of Japan warned yesterday that China is now entering a "danger zone" from the combination of a property price bubble, demographic changes and rapid loan growth.
Japan's overall exports in July slumped by 8.1 per cent compared with their level a year earlier - nearly three times faster than economists had predicted - causing the country to register its biggest ever trade deficit for July at 517.4 billion yen (S$8.18 billion).
Analysts said that the latest trade data heightened the risk that overseas demand for Japanese goods may not recover in time to take up the slack from domestic spending as the reconstruction impact after last year's earthquake begins to fade. This could stall the nation's fragile recovery, they suggested.
The most dramatic drop in Japanese exports was to the European Union - by 25 per cent to 502 billion yen - as the eurozone slid into recession. Japan's trade deficit for the month with the EU was a record 95 billion yen.
Exports to China plummeted by nearly 12 per cent to just over one trillion yen, producing a monthly bilateral trade deficit of 250 billion yen, three times bigger than in June.
Worryingly for East Asia as a whole, shipments of Japanese goods to Asian economies slid by 9 per cent to just under three trillion yen in July as the eurozone recession began to erode demand for Asian manufactures using Japan-made components such as semiconductors and electronics parts.
South Korea's exports, meanwhile, fell by 12.4 per cent in the first 20 days of August, leaving a trade deficit for the period while orders for Taiwan's exports, a forward indicator of demand, slumped 4.4 per cent in July over the previous year's level, a sharper drop than expected.
"Europe's debt crisis is the first factor to pull down exports, and the pace of decline is striking. This is comparable to the post-Lehman situation," Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch in Tokyo was quoted as saying by Reuters. "We hoped domestic demand in China would support Japan's economy, but the story is different."
Elsewhere in Asia, falling demand from Europe and elsewhere took its toll. Exports from Taiwan, a key link in the global technology supply chain, fell for a fifth consecutive month in July while South Korea registered its sharpest fall in exports in July for nearly three years while China's exports rose just one per cent.
Concerns were echoed by Robert Prior-Wandesforde, director of Asian economics at Credit Suisse in Singapore. "We are becoming increasingly concerned," he told Reuters. "Across the board, exports are weaker and have generally disappointed expectations."
The only bright spot for Japan was that robust car exports continued to help keep the balance with the United States in surplus, growing by 1.4 per cent to 422 billion yen in July. Motor vehicle exports to the world's biggest economy increased 14 per cent in the month.
Speaking at a conference in Sydney yesterday, Kiyohiko Nishimura, one of the BOJ's two deputy governors, suggested that there are similarities between what is happening in China now and Japan's asset-price bubble of the 1990s and the US housing market bubble of the 2000s.
In both cases, when the ratio of working-age people to the population peaked at a time of high property prices and sharply rising loans, these coinciding conditions led to "malignant" bubbles that spawned a financial crisis, he said.
"China has not yet peaked with respect to working-age population ratio, but it is close", while loans are on the rise, he said.