Cloudy skies in the land of the rising sun

With the prices of Australia's major commodity exports - coal and iron ore -- trending lower this year, let's all spend a minute silence and pray that yesterday's report of a massive slump in exports - down 8.0% in the month of April - was indeed an aberration caused by Cyclone Debbie that should correct in the coming months.

According to Factset data, iron ore prices have fallen by 31.2% this year to date while that of coking coal is down 37.1%.

Not only this, we learned from the National Accounts that exports accounted for the biggest subtraction (0.4 percentage points) to Australia's first quarter GDP growth of 0.3%.

While the weakness of the A$ -- A$/US$ down by 2.5% from its 2017 high; A$ TWI down 4.0% from 2017 high -- should help provide support, much also depends on growth in the economies of our major export markets.

While concerns remain for China - which accounts for roughly 34% of Australia's total exports - its economy should grow in line with the Politburo's 6.5% target this year, in the words of the RBA, "supported by increased spending on infrastructure and property construction..."

However, the latest news out of Japan - Australia's second biggest export market where about 15% of the country's products and services are shipped - provide cause for concern for Australian exporters.

Japan's GDP grew by 0.3% in the March quarter, unchanged from the December 2016 quarter but sharply lower than the preliminary estimate of a 0.5% quarterly growth rate. This took the economy's annualised growth rate down to 1.0% less than half the initial estimate of a roaring 2.2% increase and slower than the 1.2% in the final quarter of last year. What is more, it disappointed market expectations for an upward revision to 2.4%.

While Japan's economy continues to benefit from stronger global growth - net exports contributed 0.1 percentage points to first quarter GDP growth - household consumption remains sluggish - revised lower to show growth of 0.3% in the March quarter from 0.4% in the preliminary estimate.

This is because despite an improving labour market - the unemployment rate was at 2.8% in February, March and April from 3.0% in January and job vacancies have been on a steady uptrend since the start of 2017, real wages are going nowhere. Latest data showed that real wages in Japan showed no growth in the year to April after falling by 0.3% in the previous month.

This would be a concern for the Bank of Japan (BOJ) because weak wages growth translates to slower consumption that, in turn, puts downward pressure on inflation - headline 0.4% in the year to April; core at 0.3% -- and making it harder/longer for the Japanese central bank to hit its targeted 2.0% inflation rate.

This is why Bloomberg's report that the BOJ is "re-calibrating its communications to acknowledge it's thinking about how to handle a withdrawal from monetary stimulus" makes no sense.

For sure, the BOJ, like the Fed and the ECB and most other central banks engaged in non-conventional policies, wants to get their monetary policy settings back to normal. But unlike the Fed, Japan's economic fundamentals suggest that now is not yet the time.

More so given the financial markets' reaction to this "exit news". As Bloomberg printed, "Japan's currency advanced against all its Group-of-10 peers" and "The nation's two-year bond yield climbed as much as 2.5 basis points to minus 0.09 percent, the highest since February 2016".

Reactions that, if sustained, could derail the progress Japan's economy have made so far.

Read more: AustraliaBOJBloombergFedCyclone DebbieBank of JapanChinaFactset
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