Japan's exports unexpectedly fell in June for the first time in nearly five years, trade data
showed on Thursday, in a sign that U.S. economic troubles ensuing from a mortgage market debacle are dampening demand in China and other emerging economies.
The data further reinforced prevalent market views that the Bank of Japan will keep interest rates on hold at least for the rest of this year on economic uncertainties at home and abroad.
"The weak trade data would not change the BOJ's assessment of the economy and monetary policy as it has sharply cut its growth forecast recently," said Naoki Iizuka, a senior economist at Mizuho Securities. "Our view remains that a rate hike is unlikely for the rest of the current fiscal year."
Exports fell 1.7 percent in June from a year earlier, against economists' median forecast for a 3.8 percent rise and a turnaround from a 3.7 percent increase in May.
Financial markets did not react much to the trade data.
Markets are on the lookout for what Atsushi Mizuno, among the most hawkish members of the BOJ board, will say in a speech to business leaders in Aomori, northern Japan, on Thursday. He is expected to hold a news conference later.
The trade surplus for June fell a larger-than-expected 88.9 percent from a year earlier to 138.6 billion yen ($1.28 billion), against a consensus forecast for a 503.0 billion yen surplus.
The decline in the surplus was also party due to continued rises in crude oil prices, which inflated Japan's import bill.
Exports have been a key driver of the world's second-largest economy, which is in its longest postwar growth cycle.
But economists had warned that exports were likely to slow as the fallout from U.S. subprime woes hurts demand for goods in emerging economies.
"If the slowdown in the United States and Europe continues, that will affect Asian economies. Demand from emerging economies alone will not be enough to lead export growth," said Maiko
Noguchi, a senior economist at Daiwa Securities SMBC.
Exports to the United States fell for the 10th straight month with the pace of decline widening to 15.4 percent from 9.4 percent in May.
Meanwhile, exports to European Union fell 11.2 percent in June, a bigger drop than a 1.1 percent fall in May.
Exports to Asia rose 1.5 percent after an 8.1 percent increase in May. China-bound exports rose 5.1 percent, against a 12.2 percent increase in May.
The global slowdown and soaring raw material prices are hurting corporate profits, prompting many economists to forecast a slight contraction in Japan's economic growth for April-June.
Reflecting mounting woes, the government cut its economic forecast on Tuesday for the fiscal year to next March to 1.3 percent from an initial estimate of 2 percent.
That followed a downgrade last week by the BOJ, which now expects Japan's economy to mark its slowest pace of growth in six years at 1.2 percent in the current fiscal year.
The central bank has left monetary policy steady since February last year, when it hiked rates to 0.5 percent. It scrapped its tightening bias in April to adopt a neutral stance on policy as the U.S. downturn and high crude oil prices clouded the nation's economic outlook.