Abenomics Vindicated? Still Too Early to Tell

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Strong export numbers from Japan are a hopeful sign for the success of the country's economic policies but it's still early days to say that the country's export sector has turned a corner, analysts say.

Data on Wednesday showed Japanese exports rose a stronger-than-expected 10.1 percent in May from a year earlier, helped by a weak yen and a pick-up in overseas demand. This was the fastest annual rate in more than two years and compared with a 3.8 percent rise in April and expectations in a Reuters poll of analysts for a 6.5 percent increase.

"The export numbers are a hopeful sign for sure, but it's too early to say the data is bearing the fruit of a weak yen," said Tim Condon, head of research for Asia at ING Financial Markets.

"Korea had strong [export] numbers, China had a weak number, so did Taiwan and Singapore," he said. "The region is chopping around and export growth remains weak, so it would take more than a month of strong Japanese data to make me think that Japan has broken out of that mold," he said.

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Asia,which relies heavily on exports to fuel economic growth, has been hurt by weak demand from recession-hit Europe and a slowdown in China's economy. Data earlier this week, for instance, showed Singapore non-oil domestic exports falling 4.6 percent in May from a year earlier versus a 1 percent fall in April.

"I think at this stage we have to show a bit more caution, and there does seem to be a bit of volatility in the [Japan] numbers," said Laura Fitzsimmons, VP, Futures& Options, JPMorgan Investment Bank, on CNBC Asia's "Squawk Box."

Analysts said that although the data suggested the yen's weakness was starting to benefit exporters it would take time for that weakness to show up in the trade report.

The yen has weakened about 11 percent against the dollar so far this year and even recovered some of its recent falls over the past month.

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Junko Nishioka, chief economist at Royal Bank of Scotland in Japan, said that while the weak yen was good news for exports, it fueled import costs for Japan and kept the trade balance in a deficit.

Imports rose 10 percent in the year to May compared with market expectations in a Reuters poll for a 10.8 percent increase, while Japan's trade balance showed a deficit for the eleventh straight month, coming in at 993.9 billion yen ($10.4 billion) against forecasts for a deficit of 1.2 trillion yen, as high costs for energy imports offset a pick-up in shipments.

"Even if the weak yen boosts the economy it is still hard for us to expect the economy as a whole to improve significantly with import costs still high," Nishioka said.

But she added that there were some highlights in the trade numbers such as a 16.3 percent rise in Japanese exports to the U.S. in May from a year earlier, a sign of a pick-up in overseas demand for Japanese goods.

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Analysts added that the data also provided some relief to Japan Prime Minister Shinzo Abe's economic policies which have been called into question in recent weeks as the Nikkei stock index tumbled.

"We believe "Abenomics" is on track and if we do see any doubts in the short term,the Bank of Japan will take more action with its monetary policy," said Manpreet Gill, senior investment strategist at Standard Chartered Bank, talking about the Japan data on CNBC Asia's "Cash Flow."

— By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter:@DharaCNBC