Japan December Trade Surplus Comes in Below Expectations

Japan's trade surplus rose a weaker-than-expected 22.8% in December from a year earlier amid concerns that a slowdown in the U.S. economy may hurt Japanese exports.

The trade surplus rose to 1.115 trillion yen (US$9.20 billion) as export growth outpaced import gains, but the figure was short of economists' consensus forecast for a surplus of 1.2055 trillion yen, or a year-on-year rise of 32.7%.

"The figures were a little weaker than expected and that can be pinned on exports to the United States," said Naoki Iizuka, senior economist at Mizuho Securities. "The likelihood of a soft landing for the U.S. economy has increased, but these figures do not provide confirmation of that."

Financial markets showed little reaction to the trade data.

On a seasonally adjusted basis, the overall trade surplus fell 32.6% from previous month to 658.14 billion yen, data from the Ministry of Finance showed on Thursday.

Imports rose 7.6% to 5.844 trillion yen on higher import costs of nonferrous metals, while exports increased 9.8% to a record 6.958 trillion yen on the back of automobile shipments to the U.S., a ministry official said.

Exports to the U.S. rose 4.7% in December from a year earlier to 1.495 trillion yen, while shipments to China expanded 17.5% to 1.075 trillion yen. For all of 2006, preliminary data showed that the trade surplus narrowed for a second consecutive year, dropping 7.0% to 8.095 trillion yen, the lowest level since 2001 when it was 6.5637 trillion yen.

The value of both exports and imports hit record highs in 2006, with the rise in the value of imports driven by higher oil prices.

Although a slowdown in the U.S. economy has not yet had a clear effect on Japanese exports, some economists were cautious about the outlook. "Although some expect a soft-landing scenario in the U.S. economy, it will still take some time to see how a slump in the U.S. housing sector might have a negative effect on personal consumption, said Seiji Shiraishi, chief market
economist at Daiwa Securities SMBC. "I expect such a negative effect to emerge from spring to summer, and if that causes the Japanese economy to experience a soft patch, it would make it
difficult for the Bank of Japan to raise interest rates."

BOJ Governor Toshihiko Fukui told Reuters in an interview on Tuesday that the world economy was growing smoothly even with a slowdown in the U.S. economy, while an expansion at home was also continuing.

Although Japan is currently in the longest expansion of the postwar era thanks to brisk corporate capital investment backed by exports, growth has been tepid amid weakness in personal consumption.

The central bank decided last week by a vote of 6-3 to keep its monetary policy unchanged, leaving the key overnight call rate target at 0.25%. The BOJ has kept rates on hold since last July, when it raised its policy target from zero in the first rate hike in six years.

The nation's gross domestic product growth slowed to an annualized 0.8% in July-September last year from 1.1% in the previous quarter due mainly to weak consumption, but many economists expect it to have picked up in October-December.