Japan’s GDP picked up in 1H 2013 led by consumption and exports, but, surprisingly, imports from EM Asia (exception of Vietnam) have not yet received a lift.

Weak Japanese investment, which occurred over the first half of this year, typically depresses emerging Asia’s exports to Japan. Moreover, despite strong consumer spending, the tumbling Yen weighed on import demand, with local firms reaping the benefits.

Had hoped for more

Japan’s growth is reviving. No doubt. Over the first half of this year, the economy easily beat its industrialised peers. On average, growth soared ahead by 4.0% q-o-q saar in the first two quarters. That should cheer Japan’s neighbours as well. After all, it is the fourth largest export market, after the EU, US and China for Asia’s smaller economies. True, the exposure varies across markets. Korea, Indonesia, and Malaysia export relatively more to Japan than, say, India or the Philippines. Still, Japan remains a major export market for all.

So, how have shipments performed? Surprisingly, poorly. With the curious exception of Vietnam,exports to Japan have not felt the Abenomics lift yet. Chart 3 on the next page shows the growth in import volumes from various Asian sources. Despite the sharp acceleration in Japanese growth, shipments to Japan have actually mostly declined over the first half of 2013, a lot worse than last year’s outcome when Japan’s economy was stuck in low gear.

Imports from Asia have historically been closely related with local capex, not with consumption, which has been one of the key drivers of growth over the first six months of this year. Investment spending, by contrast has been relatively weak, contributing a mere 0.1ppt to headline GDP growth over the same period, much of it in the services, not the manufacturing sector.

The good news is that this may be changing. There are now signs that capex by manufacturers is picking up, which should at least give a little kick to imports from the rest of the region.

The Yen did it

It’s not just the composition of growth in Japan – being more consumption than investment-led until recently – that has been the problem. Imports from EM Asia have also been held back by the sharp depreciation of the Yen, which tumbled nearly 25% from its peak against the dollar. Against, some currencies in Asia, of course, the drop has not been quite as sharp, especially of late amid the EM selloff scare. But the latter has been too recent to be reflected in trade datawith Japan.

Chart 6 shows the moves in the Yen along with the growth in imports of consumption goods. Despite the overall strength in household spending, imports have actually contracted, which can presumably be explained by the drop in the value of the Yen, which has made foreign purchases more expensive. The gradual pick-up in capex spending as well as the recent stabilisation in the Yen exchange rate (if it persists) suggest that shipments from emerging Asia to Japan should finally get a bit of a lift. But, in truth, the gains are unevenly distributed, with local producers being so far, and will likely continue to be, the main beneficiaries of Japan’s growth rebound. The spillovers of Abenomics to the rest of the region, in short, remain primarily a financial affair.