Exports to China, Japan's largest trading partner, jumped 37.5 per cent in the year to January.

TOKYO (REUTERS) – Japan’s exports accelerated in January, led by a jump in Chinese demand, and manufacturers’ sentiment turned positive for the first time since 2019 signalling a gradual recovery from last year’s deep coronavirus slump.

Core machinery orders, a volatile but leading indicator of capital spending, unexpectedly rose for the third straight month in December, an encouraging sign for a private demand-led recovery, even as renewed curbs to contain the pandemic weighed on business activity. The indicators underscored the fragile nature of the recovery, as policymakers struggled to balance virus containment with efforts to revive the world’s third-largest economy and fixing its dire finances.

The indicators followed fourth-quarter gross domestic product data on Monday (Feb 15) that showed Japan’s economy grew more than expected, as a fast-recovering Chinese economy helped boost exports and capital expenditure.

Ministry of Finance data showed on Wednesday exports rose 6.4 per cent in January from a year earlier, roughly in line with a 6.6 per cent increase seen by economists in a Reuters poll and following a 2.0 per cent gain in December.

By region, exports to China, Japan’s largest trading partner, jumped 37.5 per cent in the year to January, biggest gain since April 2010, led by chip-making equipment, plastics and nonferrous metal. US-bound shipments fell 4.8 per cent, dragged down by airplanes, motors and car parts.

Reflecting soft domestic demand, imports fell 9.5 per cent in the year to January, versus the median estimate for a 6.0 per cent drop, swinging a trade balance to a deficit of 323.9 billion yen (S$4.06 billion).

Analysts expect Japan’s economy to contract in the current quarter, as service consumption is hit hard by renewed state of emergency curbs issued last month and set to last until March.

Separate data by the Cabinet Office showed core machinery orders, considered an indicator of capital spending for the next six to nine months, rose 5.2 per cent in December from the previous month, versus a 6.2 per cent drop expected.

Raising worries about the outlook, manufacturers surveyed by the Cabinet Office expected core orders to fall 8.5 per cent in January-March, after advancing 16.8 per cent in the previous quarter. Japanese manufacturers’ morale turned positive for the first time since July 2019 in February but a renewed state of emergency led service-sector sentiment to worsen, as the Covid-19 hampered businesses, the Reuters Tankan survey showed.