It is widely recognized that the sharp depreciation of the Japanese yen has not lifted Japanese export volumes. In December 2015, Japanese export volumes had fallen 4.4% year-over-year after rising 3.9% in December 2014 and 2.5% in December 2013.
These are a number of explanations for this counter-intuitive result given the yen's past depreciation. First, global demand is weak. Second, has adopted a direct investment strategy rather than an export-orientation.
For example, many of the Japanese brand autos in on the US highways were produced in the US. Servicing foreign demand through local production may diminish exports. Third, Japanese producers did not risk antagonizing competitors may cutting prices to boost market share. Japanese producers were content to let the translation of foreign earnings boost the yen value of their revenue.
The weaker yen did not produce the kind of export gains that many economists, especially those who stress currency wars, had anticipated. However, two other anomalies may not have received nearly as much attention.
First, let us look at the Swiss trade balance. Recall that January, the Swiss National Bank lifted its cap for the franc and it appreciated sharply. What has happened to the Swiss trade balance and exports over the past year?
The February trade surplus was a record high of CHF4.07 bln. This is a not a one-month fluke. The 12-month moving average is CHF3.21 bln. The February 2015 trade surplus was CHF2.28 bln, and the 12-month moving average stood at CHF2.55 bln. In volume terms, exports have risen 6.4% year-over-year.
According to the OECD, the Swiss franc is the most over-valued of the major currencies at 24.3%. The second most over-valued, according to the OECD is the Danish krone at 11.2%. The same methodology finds the euro, where the destination of the bulk of Swiss exports, the most under-valued at 17.7%.
Export growth in February was driven by value-added activity in chemicals and pharmaceuticals. The traditional, but lower-value-added and more price-sensitive exports, like jewelry and timepieces, fell.
The second anomaly involves US trade. Recall that the US lifted its ban on oil exports in December. However, it appears that US oil exports have fallen rather than risen here at the start of 2016. Clipper Data was quoted in the Financial Times suggesting that US oil exported via tankers has fallen by around 5% to 325k barrels a day. Such shipments of oil were 342k barrels a day in Q1 2015.
A good part of the explanation is Canada. Oil exports to Canada were not subject to the ban. Exports to Canada are less attractive now, and exports elsewhere have not picked up the slack. One of the important developments in Canada was the reversing of a pipeline (Line 9B) which allowed crude oil to be transported from the West to the East. Previously, the Quebec would often get US oil by tanker.
The spread between Brent and WTI has narrowed. WTI is a little cheaper but not enough to offset transportation costs. It is not as if the world was waiting for US crude and it is not as if the price is sufficiently attractive to for US producers to gain market share.
Not only are US oil exports soft in the first quarter, but also imports have been strong. Oil imports are running near four-year highs. There is strong domestic demand, and US refineries are busy creating diesel and petrol products to meet foreign demand.