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Japan Trade Surplus Soars on Strong Exports

Japan's trade surplus nearly quadrupled in August from a year earlier as strong exports to Europe and Asia offset a slowdown in shipments to the United States, data showed on Wednesday, but economists were watching for possible fallout from softer U.S. growth.

The data did not change views that the Bank of Japan will hold off from raising rates for a while given uncertainty about the impact of trouble in the U.S. subprime mortgage market on the real economy.

Economists saw few signs that the global credit squeeze was taking a toll on overseas demand for Japanese goods.

They cited a slower pace of falls in export volume to United States -- Japan's biggest market -- as a positive sign, but stressed that the future impact of U.S. weakness warranted caution.

"It was an upside surprise and the rise is mainly due to stronger-than-expect ed growth in exports," said Kiichi Murashima, an economist at Nikko Citigroup. "The key is whether overall exports will rise in the coming months and early next year as exports to the United States remain soft," he added.

Financial markets reacted little to the data.

The customs-cleared trade surplus rose 287.6% in August from a year earlier to 743.2 billion yen (US$6.47 billion), well above analysts' median forecast for a 26.6% rise to 242.8 billion yen.

Exports rose a greater-than-expected 14.5% from a year earlier, helped by a 16.4% jump in exports to Asia and a 15.6% increase in those to Europe.

Imports rose at a much slower pace than expected.

Eyes On U.S.

Exports to the United States increased 4.6% from a year earlier. In volume terms, U.S.-bound exports fell 5.2% from a year earlier, but the pace was slower than a 10.4% decline in July.

Exports to the United States have been sluggish this year in light of the slowdown in the U.S. economy, and analysts are wary that a decline in the housing market there could dampen consumption and weaken demand for Japanese goods.

Noriaki Haseyama, an economist at Dai-ichi Life Research Institute, said he expected the U.S. economy to keep expanding, albeit modestly, following various steps including an interest rate cut by the Federal Reserve this month.

"Even if a recovery in the U.S. economy is delayed, growth in Europe and emerging markets will likely remain strong," he said. "Thus, I don't think Japanese exports will falter."

Exports have been a key driver of growth in the world's second-largest economy, which is enjoying its longest expansion of the postwar period, albeit at a slower pace than in previous booms.

However, Japan's economy contracted 0.3% in April-June, after two straight quarters of growth, mainly due to a sharp decline in corporate capital investment.

The BOJ has left monetary policy unchanged since raising the key policy rate to a decade-high 0.5% from 0.25% in February, which was the first rate hike since July last year.