Japan’s slowing exports could have an impact on the country’s exchange traded funds (ETFs).

For the first time in four years, Japan’s exports fell year on year. The economy in Japan is dependent upon domestic consumption to sustain growth, and with exports down, a recession may be in the near future for the islands. Edward Hugh for Seeking Alpha reports that exports decreased 1.7% in June 2007, and were down 15.4% year on year in June, the 10th-largest drop since November 2003.

Central banks across Asia have been raising interest rates to fight inflation, which has slowed economic growth as well as lessening the demand for Japanese exports, reports Mayumi Otsuma for Bloomberg. The price of food and gas is putting the squeeze on household budgets.

Meanwhile, Japan’s stocks dropped after concerns overseas markets will shrink after Canon reported profits declined on a stronger yen with slowing sales in Europe and the United States.

Canon derives 80% of its revenue from abroad and stocks fell for the third straight month after reporting a third drop in a row in earnings.

ETFs that could feel the pinch:

• iShares MSCI Japan (EWJ), down 7.1% year-to-date
• PowerShares FTSE RAFI Japan Portfolio (PJO), down 11.1% year-to-date
• SPDR Russell/Nomura PRIME Japan (JPP), down 6.5% year-to-date
• WisdomTree Japan Small-Cap Dividend Fund (DFJ), down 4.5% year-to-date

Tags: Asia, DFJ, EWJ, Japan, JPP, PJO, Retail