June’s Japanese Merchandise Trade Balance dealt a crushing blow to the idea that countries will be able to decouple the US slowdown by replacing American demand with that from emerging markets. The metric saw the trade surplus shrink to just ¥138.6 billion versus expectations of ¥506.0 billion. The result owed to a -1.7% decline in exports, the first net loss since 2003. While there was no surprise that exports to the US eased for a tenth consecutive month (falling -15.4%), the data revealed sharp declines in shipments to Europe (-11.2%) and to Asia (1.5% in June vs. 8.1% in May). Exports to China slowed to 5.1% from 12.2% in the preceding month. Declines in demand from emerging markets seemed only a matter of time: commodity prices along with buoyant home-grown economies have bid up prices levels, bringing on a sweeping trend of monetary tightening. Higher interest rates have depressed consumption, including that of goods imported from Japan. Given its reliance on the export sector to drive economic growth, current trends suggest Japan will be in a slump for some time to come.