Japanese exports shrank in February for the third consecutive month, indicating the growing pressure on the country’s export-dependent economy. The latest data suggests that the central bank may be forced to offer more incentives to contain the effects of slowing foreign demand and trade conflicts.

The slowdown in global growth, the Sino-American trade war, and the difficult Brexit have already forced many central bankers to move on to a loosened monetary policy in recent months.

Japan is in a similar situation where factories have cut production and business confidence has fallen as a result of growing global economic uncertainty.

Data from the Japanese Ministry of Finance shows that exports have fallen by 1.2% yoy in February. By comparison, economists expected a contraction, but to a lesser extent – 0.9%.

Imports even suffered even further, down by 6.7% on a consensus reduction estimate of 5.8%. Just a month earlier, Japanese imports shrank by 0.8%. Japan’s trade surplus has reached 339 billion yen against a deficit of 14 billion yen, reported a year earlier. Market expectations were for a surplus of 310 billion yen.

Other data shows that industrial production in January decreased by 3.4% on a monthly basis. Preliminary data showed a decline of 3.7%. In December, however, the decline was modest – 0.1%. Thus, in January, a third consecutive month of contraction of industrial production was recorded, and the decline was the largest since January 2018.

The weakening of exports is largely due to the weaker supply of cars and various industrial equipment.

According to some analysts, the possibility of a recession can no longer be ruled out.

Central Bank of Japan (BoJ) lowered its expectations last week for exports and manufacturing but kept its monetary policy unchanged. Nevertheless, the growing weakness in exports could put pressure on the Bank of Japan to further relax its monetary policy, especially given that inflation remains far from its target of 2% and pressure on business and consumers continues to grow.

Central Bank Governor Haruhiko Kuroda acknowledged the challenges facing the economy but did not indicate that there would be any further incentives.

The majority of bankers in the BoJ are of the opinion that the second half of the year will be better for the Japanese economy, relying on the planned stimulus for China to revive demand.

The biggest concern of the bank’s representatives is that weakening exports and production will harm corporate moods, which will cause enterprises to slow down capital spending and wage increases.

The US-China trade war has already limited world trade.

The latest data show that exports to China, Japan’s largest trading partner, rose by 5.5% year-on-year thanks to the supply of semiconductor and automotive equipment. This is a recovery from the registered decline in January of 17.4%. However, overall trade with the Asian giant remains weak.

Japanese shipments to Asia, which account for more than half of total exports, declined by 1.8% for the fourth month in a row.