Japan's trade surplus fell for the first time in nine months in July, prompting concerns about the outlook for the country's exports amid worries over a slowdown in the U.S. economy due to rising U.S. mortgage defaults.
But the data did little to alter market views that the Bank of Japan (BOJ) will keep interest rates on hold at a two-day policy meeting starting on Wednesday in view of a global credit squeeze that has sparked financial market turmoil.
Exports rose 11.7% from a year earlier to 7.0627 trillion yen (US$61.40 billion), below economists' median forecast for a 13.0% rise, led by shipments of automobiles and steel products, customs-cleared data from the Ministry of Finance showed on Wednesday.
Japan's overall imports, on the other hand, rose 16.9% to 6.3915 trillion yen, against the market consensus for a 15.6% increase, due to rising crude oil and raw materials prices as well as the yen's weakness.
As a result, Japan's trade surplus fell 21.1% in July from a year earlier to 671.2 billion yen, against economists' median forecast for a surplus of 764.9 billion yen, or a year-on-year fall of 10.1%.
"If financial markets remain shaky on U.S. subprime problems, that could eventually cool consumer sentiment and hurt U.S. economic growth, thereby weighing on Japanese exports to the U.S. We need to remain on guard for such risks," said Noriaki Haseyama, an economist at Dai-Ichi Life Research Institute.
The overall value of imports in July was a record high for any month, according to a finance ministry official. The yen's rate and higher prices of crude oil and nonferrous metals contributed to the rise in overall import value, the official said.
Financial markets showed a muted reaction to the data.
Exports to the United States, Japan's largest export destination, rose 1.3% from a year earlier to 1.4420 trillion yen, mainly on an increase in shipments of organic compounds.
U.S.-bound exports had fallen in April for the first time in more than two-years but showed signs of recovery in the following months, while solid demand for Japanese goods in Asia and Europe has cushioned a slowdown in U.S. bound shipments.
Exports to Asia climbed 13.8% from a year earlier to 3.4236 trillion yen, rising for the 65th month in a row, and those to China increased 20.6% to 1.1018 trillion yen, led by shipments of electronic parts.
EU-bound exports rose 13.1% to 991.1 billion yen, up for the 21st straight month, led by shipments of automobiles.
On a seasonally adjusted basis, the overall customs-cleared trade surplus increased 0.1% from the previous month to 822.6 billion yen, the data showed.
"The trade surplus will likely return to an upward trend in the future, but its momentum may not be as strong as previously expected. How the subprime mortgage problems may play out in terms of the impact on consumer sentiment needs to be watched," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Exports have been a key driver of growth in the world's second-largest economy, which is enjoying its longest growth cycle of the postwar period, albeit at a slower pace than in previous booms, on the back of robust corporate spending.
Japan's economic growth slowed to an annualized rate of 0.5% in April-June from 3.2% logged in the previous quarter, due in part to sluggish export gains.
The BOJ has left monetary policy unchanged since raising the key policy rate to a decade-high 0.50% from 0.25% in February, which was the first rate hike since July last year.