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Japan Trade Surplus Jumps on Solid Exports

Japan's trade surplus jumped more than expected in June as exports to the United States showed signs of recovery, keeping alive expectations that the Bank of Japan will raise interest rates as early as next month.

Exports rose 16.2% from a year earlier to 7.28 trillion yen (US$60.5 billion), rising more than economists' median forecast for a 14.0% rise, custom-cleared data from the Ministry of Finance showed on Wednesday.

Imports rose a less-than-expected 10.7%, with the nation's trade surplus rising 53.4% to 1.23 trillion yen, far above a consensus market forecast for 948.5 billion yen.

"Exports were stronger than expected. In terms of year-on-year changes, export growth seems to have hit bottom in March-April and perked up gradually in May and June, in tandem with a recovery in the U.S. manufacturing cycle," said Yoshimasa Maruyama, an economist at BNP Paribas.

Although financial markets showed hardly any reaction, Maruyama said the data is positive for the chances of a Bank of Japan rate hike in August.

Exports to the United States, the largest importer of Japanese goods, increased 6.7% from a year earlier to 1.45 trillion yen, compared with a 0.4% increase in May and a 5.0% fall in April, the first fall in more than two years.

A sign of recovery in U.S-bound exports eased concerns that a slowdown in the world's largest economy could hurt Japan's economic recovery.

"Exports to the United States will probably pick up in the latter half of the year. Subprime problems aside, production is firm and inventory adjustments are progressing there," said Akiyoshi Takumori, chief economist at Mitsui Sumitomo Asset Management.

Still, some analysts fret that problems in the U.S. subprime mortgage market may hurt the overall U.S. economy, thus putting a brake on the Japanese economy through slowing exports.

The BOJ is also monitoring developments in U.S. subprime loan woes and its potential impact on Japanese economy. BOJ Governor Toshihiko Fukui said earlier this month that U.S. economy is
likely to achieve a soft landing as adjustments in the housing sector progress.

Exports to the rest of the world remained solid. Exports to Asia grew 15.8% from a year earlier to 3.54 trillion yen, rising for 64th month in a row, and those to China increased 22.6% to 1.13 trillion yen.

E.U.-bound exports rose 16.3% to 1.08 trillion yen, in part helped partly by the yen's weakness against the euro. On the other hand, Japan's overall imports rose 10.7% to 6.06 trillion yen, below the market forecast for a 12.9% rise.

Exports have been a major engine of growth in Japan's economy, which is now enjoying its longest period of expansion in the postwar era.

The BOJ has said it will need to gradually raise rates in line with improvements in Japan's economic and price conditions. Many analysts expect the next rate hike to come in August.

The central bank raised the key policy rate to a decade-high 0.50% from 0.25% in February, which was the first rate hike since July last year.