TOKYO: 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 in December, an encouraging sign for a private sector-led recovery, even as renewed curbs to contain the pandemic weighed on business activity.

Despite the upbeat indicators, however, analysts warn the recovery momentum in the world’s third-largest economy could stall as policymakers struggle to balance the need to contain the virus against the need to revive growth and fix Japan’s dire finances.

“The economy’s recovery is pausing in the current quarter, although development of coronavirus vaccines may reduce risks ahead,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“Uncertainty remains high for both exports and machinery orders, as delays in vaccinations or resumption of activity among the public on expectations for vaccines could heighten risks of another wave of virus resurgence.”

The indicators followed fourth-quarter gross domestic product data on Monday 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 percent in January from a year earlier, roughly in line with a 6.6 percent increase seen by economists in a Reuters poll and following a 2.0 percent gain in December.

By region, exports to China, Japan’s largest trading partner, jumped 37.5 percent in the year to January, the biggest gain since April 2010, led by chip-making equipment, plastics and nonferrous metal.

The big gain is partly due to the base effect of the large decline seen a year before when the Lunar New Year holidays, which weighs on trade activity, fell in January, a ministry official said.

US-bound shipments fell 4.8 percent, dragged down by airplanes, motors and car parts. Reflecting soft domestic demand, imports fell 9.5 percent in the year to January, versus the median estimate for a 6.0 percent drop, swinging a trade balance to a deficit of 323.9 billion yen ($3.05 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 percent in December from the previous month, versus a 6.2 percent drop expected.

The government described machinery orders as picking up, marking an upgrade for the third straight month from its previous assessment that they were showing signs of a pick-up.

Raising worries about the outlook, however, manufacturers surveyed by the Cabinet Office expected core orders to fall 8.5 percent in January-March, after advancing 16.8 percent in the previous quarter.

Japanese manufacturers’ morale turned positive for the first time since July 2019 in February, the Reuters Tankan survey showed.

Reuters