Indicators for Japan's GDP in 2Q09 point out that they have exited recession. The Cabinet Office of Japan has revealed that their 2Q09 GDP grew 3.7 percent annualized and 0.9 percent QoQ. The Japanese Ministry of Finance has also reported that Japan's overall export value in June came to JPY4.6 trillion, falling more than 35 percent YoY, but contracting less than the preceding month. Their import value stood at Yen4.1 trillion, which had also contracted less at 41 percent YoY. This has resulted in Japan to post a trade surplus for the first time in 20 months. Japan's economy began to show signs of recovery with their higher Industrial Production Index in June at 81 points, against 79.1 points in May.
The latest Household Consumer Confidence Index in July shot up to 39 points, 1.9 points higher than June. So far, despite the fact that the Japanese government has poured JPY25 trillion (USD262 billion) into the economy in stimuli, Japan is still challenged by rising unemployment over the last 6 months (January to June). Moreover, the Japanese economy may face deflation following a falling Consumer Price Index for 5 consecutive months, at 1.8 percent in June. The Retail Price Index for the same month falling 0.3 percent also reflects weak consumer spending due to rising unemployment causing consumers to observe greater caution in their spending.
This resulted in the Bank of Japan maintaining the same policy rate at 0.1 percent for 9 consecutive months to spur domestic demand. A report from the Focus Economics Consensus for August projects that in 2009, Japan's economic growth may fall 6.4 percent, but it is expected to return to growth of 1.4 percent in 2010. KASIKORN RESEARCH CENTER (KResearch) has studied the environment surrounding Thai-Japanese trade and investment over the first 7 months of this year (7M09), and the direction for trade and investment between the two countries through to the year-end:
Trade – The impact of the global recession has pressured trade between Thailand and Japan, causing it to decelerate in 2009. During 7M09, the trade value totaled USD20.744 billion, falling more than 34 percent YoY. The export value was around USD8.471 million, contracting 28.09 percent YoY, and the import value totaled USD12,273 million, falling almost 38 percent YoY. Key exports from Thailand that had contracted were automobiles, equipment and parts, integrated circuits, computers/ equipment and parts, aluminum products, plastic products, canned and processed seafood and rubber. It is noteworthy that the exports of processed chicken products still showed growth. Thai imports of important categories, particularly industrial products from Japan, shrank.
KResearch expects that the trade between Thailand and Japan will improve in line with the global economic recovery and positive signals seen in the Japanese economy, where our exports to Japan grew 5 percent in July, and the ASEAN-Japan FTA pact (trade liberalization) will soon be enforced. A bright future lies ahead for many Thai exports to Japan, such as farm produce, processed agricultural products, including processed chicken as well as canned and processed seafood. Also, our industrial products are seeing satisfactory sales there, such as electronics, automobiles and parts for environmentally-friendly applications.
Investment – The number and value of Japanese investment projects in Thailand during 7M09 dropped because Japan has been affected by the global economic downturn. There were 130 Japanese investment projects asking for investment promotions in Thailand during that period, falling by 30.8 percent YoY, with a total investment value of THB 3.02 billion, dropping more than 20 percent against the value of 3.78 billion in 2008. Japanese investors are interested in many businesses, such as electrical appliances and electronics, automotive industry, metals, machinery, chemicals, paper and services.
The outlook for Japanese investment in Thailand should improve over the remainder of 2009 because the recession has bottomed out and the Japanese economy will likely recover over the period through to the year-end. The businesses that could become the recipients of Japanese investment include automotive eco-car projects to serve growing demand in line with Japans and Thailand's policy of promoting the use of alternative energy and environmentally-friendly cars. In addition, Japan may set up a food production hub in Thailand to serve their food industry. Japanese investors may use privileges derived from the JTEPA and ASEAN-Japan pacts to gain tariff reductions and invest into Thai service industries with high growth, particularly transportation, retail business, construction, finance, insurance, etc.
However, our unstable political situation and the outbreak of the ‘swine flu' may affect the confidence of Japanese investors and delay their investments into our country. Moreover, rising oil prices will induce higher costs of other products and harden the Baht, compared to other ASEAN countries.
Moreover, the Japanese political situation should be considered as well because of the general elections to be held August 30, 2009. KResearch views that Japan's economic policy and future leaders will maintain the same relations and policies vis-à-vis Thailand on both trade and investment, because Japan is our top trade partner and investor.