Japan's exports rose more than expected in April from a year earlier, as a surge in shipments to China and other developing countries cushioned the blow of U.S. economic weakness.
However, with uncertainty the watchword at the Bank of Japan, the data on Thursday did little to alter market views that the central bank will keep rates on hold for a while as it waits for the fog over the economy to clear.
"Both exports and imports were stronger than we had expected. In that sense, they are both positive for the economic outlook." said Takahide Kiuchi, chief economist at Nomura Securities.
Exports grew 4.0 percent from a year ago, well above economists median forecast for a 2.5 percent rise.
Shipments to China jumped 14.1 percent due to robust exports of luxury cars and auto parts.
Exports to the United States, still suffering from the subprime mortgage crisis, fell 9.1 percent, marking the eighth straight month of year-on-year falls.
A stronger yen pushed down the value of exports to the United States, which are mainly priced in dollars. The yen averaged 103 per dollar in April, up around 13 percent from a year earlier.
But Kiuchi saw positive signs as the volume of exports to the United States jumped 11.4 percent, the first rise in a year.
"This may be a sign of an end in the worsening in U.S.-bound exports," he said.
On the other hand, shipments to the European Union grew at the slowest pace since October 2005, which Kiuchi said may be a sign that economic woes are building in Europe.
Exports made up the bulk of stronger-than-expected 0.8 percent growth in the Japanese economy in the first quarter, showing the heavy reliance of the world's No.2 economy on global economic health.
But some economists have said exports could run out of steam as economic troubles in the United States spread to other parts of the world.
A slowdown in exports would take a toll on capital spending by export-oriented Japanese companies, whose robust earnings have also played a big role in Japan's growth.
Imports rose 11.9 percent -- above market expectations of a 6.4 percent rise -- as a surge in oil and raw material prices forced Japanese companies and consumers to pick up a higher tab.
They look set to rise further again in May, with U.S. crude futures hitting a fresh all time high above $135 per barrel, compared to about $115 on average in April.
The trade surplus nearly halved from the same month last year to 485 billion yen.
Financial markets showed limited response to the data.
Swap contracts on the overnight call rate showed immediately after the trade data that the market sees a 45 percent chance of a quarter-point rate hike by the year-end, up from 35 percent early last week.
The BOJ kept its overnight call rate target unchanged at 0.50 percent as widely expected at a two-day policy board meeting that ended on Tuesday.
The central bank's chief, Masaaki Shirakawa, told a news conference after the decision that he was still focusing on downside risks to the nation's economy.