Japan Current Account Surplus Falls Less Than Forecast

Japan's current account surplus fell a smaller than expected 48.8 percent in March from a year earlier, a sign that export demand may be stabilizing after a slump in the wake of the financial crisis.

The country is mired in its worst recession since World War Two but exports and output have shown some signs of recovery, adding to hopes the worldwide downturn may be nearing a bottom.

"As overseas demand has bottomed out, the trade balance will recover moderately albeit at a low level. Japan will face fewer risks of a current account deficit," said Junko Nishioka, chief
Japan economist at RBS Securities. "Still, risks remain in global financial markets, which could send the yen higher and trim Japan's trade surplus in the coming months."

Japan logged a current account surplus for the second straight month in March, at 1.49 trillion yen (US$15.3 billion), after a record deficit in January, Ministry of Finance data showed.

The surplus shrank in March at a smaller annual pace than a median market forecast of 58.4 percent.

But the data also showed earnings on Japan's overseas investments fell 13 percent in March from a year earlier, in further pain from the global financial crisis. Leading central banks said on Monday the global economy is about to turn the corner, although there were signs recovery
could be long and painful.

Reflecting improvements in Japanese credit market conditions, outstanding commercial paper held by banks fell 15.4 percent in April from a year earlier, much bigger than a 4.3 percent drop in the year to March, Bank of Japan data showed on Wednesday.

A BOJ official told a briefing that he expects growth in bank lending, which rose 3.4 percent in April from a year earlier, to slow in coming months as corporate fund demand appeared to have run its course.

Japanese exports in March were almost half the levels of a year earlier but rose on a seasonally adjusted basis from February, the first monthly pick up since May last year, trade balance data showed last month.

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The world's No. 2 economy probably shrank 4.2 percent in the first quarter, economists polled by Reuters estimate, putting it on track for its deepest quarterly contraction in modern history.
The expected decline, coming after a 3.2 percent fall in October-December GDP, would mark the fourth straight quarter of economic contraction and would wipe out all of Japan's growth since mid-2003.

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