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News Release

Background to the Deceleration of Exports and Outlook for the Future
- Slowdown set to continue due to abnormal symptoms in Chinese economy and
deceleration in IT -

April 15, 2005

Overview

This report examines the changes that have taken place in recent years in the factors that determine the trend of exports and considers the outlook for exports, which is set to have a major impact on the future of the economy as a whole.

Since the late 1990s, the importance of foreign exchange rate fluctuation as a determining factor of the trend of export volume has declined.

In recent years, the determining factors in the trend of Japanese exports have been changing. By region, the direct influence of the US economy has fallen in relative terms, while the impact of fluctuation of the Chinese economy has grown, and by product category, the importance of IT products has grown.

Close examination of the recent export slowdown by region reveals a marked deceleration of the growth of exports to China and other Asian countries, which in recent years have been gaining importance as export markets. The slowing of the growth of exports to China is due to the deceleration of investment among foreign-affiliated companies in the coastal regions of China, while that of exports to other Asian countries is due to the worldwide slowing of investment in information technology.

The difficult conditions surrounding the two major determining factors of the trend of exports ¡¦China and information technology ¡¦mean that Japanese exports are likely to suffer a lack of vitality for some time, especially in shipments to China and other Asian countries.

With the slowdown in exports continuing, the Japanese economy will remain prone to downturns in the short term, and the recovery previously forecast for the second half of 2005 may be delayed.

For more information on the content of this report, please contact: Hisashi Yamada, the Japan Research Institute, Limited.

Tel: 03-3288-4245
E-mail:yamada@rsc.jri.co.jp

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