Japan's exports rose steadily in November from a year earlier but shipments to the United States fell for the third straight month, reinforcing worries that slower U.S. growth will have a broader impact on Japan's economy next year.
The data, coming hours ahead of a Bank of Japan decision on interest rates, underlined the prevalent view that the BOJ will hold off from raising rates until around mid-2008, in part because of the global credit market crisis.
"While shipments to the United States and the EU are slowing, exports to Asia remain firm," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But if the United States and EU begin to have difficulties absorbing imports from overseas, that could start hurting Asian economies. We need to watch out for that next year," he added.
Overall exports rose 9.7 percent from a year earlier, data from the Ministry of Finance showed on Thursday, short of a consensus market forecast of a 10.5 percent rise.
Imports rose 13.2 percent, more than expected, as higher crude oil prices pushed up oil imports sharply.
As a result, Japan's trade surplus fell 12.2 percent to 797.4 billion yen ($7.04 billion). That was below economists' median forecast for a 1.0 percent rise, although almost half of economists polled last week saw a contraction in the surplus.
Naoki Iizuka, senior economist at Mizuho Securities, pointed to a steady 11.5 percent annual rise in export volume, but he remained skeptical about the outlook for Japan's exports.
"I expect their pace of growth to slow from now on, mainly due to slower U.S. growth in the wake of subprime mortgage problems and a stronger yen compared with about six months ago," Iizuka said.
Firm shipments to Europe and Asia have been offseting continued declines in exports to the United States, but some economists noted signs that the pace of rises in exports to Europe and China is gradually slowing.
Exports to the United States fell 6.0 percent from a year earlier, marking the third straight month of annual declines.
Shipments to China, which is likely to overtake the United States as Japan's largest export destination this year, jumped 13.7 percent. But the pace of rises is slower than the annual increases of more than 20 percent marked earlier this year.
Financial markets reacted little to the trade data.
While expecting that the BOJ will keep interest rates on hold at 0.5 percent later in the day, investors will pay close attention to what BOJ Governor Toshihiko Fukui says about lingering uncertainty surrounding the global economy at a news conference expected from 3:30 p.m.
The BOJ has long said it will raise rates gradually, as keeping its current ultra-low policy rate of 0.5 percent may lead to overheating in the economy in the long term.
But worries over a global credit squeeze and slowing U.S. growth have kept the BOJ from tightening since it last raised rates in February.
Economists expect the central bank to stand pat on policy until well into next year as the deepening global credit crisis and worsening domestic business sentiment have made Japan's growth prospects less promising than previously thought.
With rates seen on hold, the BOJ's board members are likely to focus their debate on whether the bank's thesis -- that corporate strength on the back of solid growth in the world will lead the economy and spill over to households -- still holds true.
A Reuters survey released earlier on Thursday showed that sentiment among Japanese manufacturers worsened in December from the previous month, partly on volatile financial markets and rising raw material prices.
The Reuters Tankan, a monthly survey of leading Japanese firms, produced an index of plus 21 for manufacturing firms in December, down from plus 23 in November and matching a two-year low hit in October.