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Japan exports rise in July offering hope for economic growth

Japan's exports rose for the first time in three months in July, a sign that overseas demand is improving, but optimism was tempered by the month's trade deficit which widened unexpectedly.

The country's exports rose 3.9 percent in July from the year ago period, data showed on Wednesday, a tad higher than a Reuters forecast for a gain of 3.8 percent and after falling 2 percent in June.

Imports rose an annual 2.3 percent versus expectations for a 1.7 percent decline and following an 8.4 percent in increase in June.

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This brings trade deficit to 964 billion yen for July compared with June's deficit of 822.2 billion yen. Expectations were for a trade gap of 702.5 billion yen.

Analysts say the improvement in exports was thanks to a recovery in exports to the U.S., Europe and Asia, which rose 2.1 percent, 10.2 percent and 3.4 percent, respectively, on an annual basis.

"Major contributors to the increase were motor vehicles, metal working machinery, and scientific optical instruments, which were partially offset by declines for visual apparatus, computer parts and other items,"Harumi Taguchi, economist at IHS Global Insight, wrote in a note.

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Izumi Devalier, Japan economist at HSBC, said the rise in imports was a "big surprise" and signals recovery in domestic demand.

Tomohiro Ohsumi | Bloomberg | Getty Images

"We had seen very strong imports in the previous month so we had expected it to come down a bit but it looks like imports are recovering quite quickly though consumption remains weak in Japan," she said.

The data have raised hopes that exports can offset a slump in consumer spending sparked by the April consumption tax hike. Growth data last week showed the Japanese economy contracting 1.7 percent on-quarter and an annualized 6.8 percent in the second quarter as the effect of the consumption tax dragged the economy.

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Japan raised consumption tax to 8 percent from 5 percent in April, in a bid to stem the country's mounting debt pile.

"I think consumption still remains a big worry. On the export side, it is a relief that July exports rebounded but it's too early to say whether that rebound is going to continue for the rest of the quarter," HSBC's Devalier added.

The trade balance, which stayed in the red for a 25th month as the country continued to import oil an gas to compensate for its idled nuclear plants, is a worry but analysts aren't too concerned for now.

"It's modest. Japan can finance this. It [Japan]has the biggest positive external position in the world. It's got a huge external warchest so for an ageing population, they consume abit more .. it's not the end of the world," said Paul Gruenwald, chief economist of Asia Pacific at Standard and Poor's Ratings Services.