Japan's October Current Account Surplus Rises Unexpectedly

Japan's current account surplus rose unexpectedly in October from a year earlier as continued gains in investment income offset a shrinking trade surplus.

Economists did not see the news affecting the timing of the Bank of Japan's next rate increase, which many forecast to come by January.

The current account surplus in October stood at 1.5146 trillion yen ($12.97 billion), up 5.2% from a year earlier, compared with a consensus forecast for a 4.5% fall. It marked the fourth straight month of rises from the year-earlier figure.

The trade surplus component, however, contracted 18.9% in October to 756.2 billion yen, underlining some analysts' concerns that exports may be slowing as the U.S. economy cools down.

Exports rose 11.1%, up for the 35th straight month, while imports were up 17.1%, a 32nd consecutive month of rises, Ministry of Finance data showed.

Exports of automobiles, steel goods and nonferrous metals rose, while notable rises in imports included liquefied natural gas and nonferrous metals. "It is a bit worrisome that the trade surplus has declined. The rise in exports is slowing as global economies seem to be losing momentum," said Seiji Adachi, a senior economist at Deutsche Securities.

"On the other hand, income from overseas investments is on the rise, reflecting the accumulation of Japan's past surpluses. The income surplus will likely continue to offset declines in the trade surplus, helping to boost the headline figure."

The income surplus rose from a year earlier for the 27th straight month and marked a double-digit year-on-year rise for the 16th straight month.

While the figures are seen unlikely to have much impact on monetary policy, they add to a recent batch of weak data that has scaled back market expectations that the Bank of Japan will tighten credit at its next policy meeting on Dec. 18-19.

Financial markets showed little reaction to Wednesday's data. A slowdown in exports would bode ill for the economy particularly because corporate-sector strength has been slow in filtering through to households.

The government downgraded its view of the economy in November for the first time in almost two years, as weak consumption cast a cloud over the nation's long-lasting recovery.

Japan's economic growth for July-September was revised down to an annualized 0.8% from a preliminary reading of 2.0 percent, hit by a slowdown in capital expenditure growth and sluggish consumption.

Still, a weaker yen may have given exports a boost. The Japanese yen stood at an average 118.66 yen to the dollar in Tokyo during October, 3.3% lower than the same month last year. On Wednesday it was around 116.90 yen in Asian trade.

"The current account data will hardly affect the timing of the Bank of Japan's next interest rate hike," said Akiyoshi Takumori, chief economist at Mitsui Sumitomo Asset Management. "The chances are 50-50 for the BOJ to raise rates at its meeting on Dec. 18-19 or in April after closely examining its quarterly tankan corporate surveys this month and in March."

The BOJ has kept monetary policy on hold after raising its overnight call rate target to 0.25% from zero in July, which was the first rate increase in six years.

Market players are divided over whether the central bank will raise rates next week or wait until early next year, although a sharp downward revision in July-September economic growth has scaled back market expectations of a December move.

Market participants are awaiting the Bank of Japan's quarterly tankan survey of corporate sentiment on Friday, which is seen influencing next week's policy decision.

Markets see the timing and pace of Japanese rate rises as critical because the wide rate differential between Japan and its trading partners has helped pushed the yen's traded-weighted, inflation-adjusted value to a 21-year low in the past few months.