Japan's trade surplus shrinks 87 percent in July

TOKYO: Japan's trade surplus shrank sharply in July on higher oil and commodities prices, figures showed Thursday, but robust exports to the rest of Asia, Russia, Australia and the Mideast are helping reduce Japan's dependance on a slowing U.S. market.

Developing economies have ``become a much bigger source of demand for Japanese exports,'' said Richard Jerram, an economist for Macquarie in Tokyo. ``It's very different from 2001, when you saw a sharp decline in overall export volumes, and that had a traumatic impact on industrial production and corporate profits. You're not seeing a repeat of that.'' If oil prices remain stable around US$110 to US$120, the trade surplus could turn up later this year, Jerram said.

In July, Japan's global trade surplus fell 86.6 percent from a year earlier to 91.1 billion yen (US$830.6 million), the fifth straight month of decline, the Ministry of Finance said. Imports grew 18.2 percent to 7.54 trillion yen (US$68.7 billion), while exports rose 8.1 percent to 7.63 trillion yen (US69.6 billion). While Japan's trade gap with the U.S. fell on slower exports of cars and electronics, the picture elsewhere was brighter.

Driven largely by China _ now Japan's largest trading partner _ exports to Asia jumped 12.7 percent. Exports destined for Russia surged 45.8 percent, those to the Middle East grew 27.5 percent, and those to Australia expanded 32.8 percent.

Japan's trade surplus with the United States fell 19.0 percent, down for the 11th straight month on slower exports of cars, auto parts, machinery and electronics. The key question for Japan now is whether such growth is sustainable. UBS economist Akira Maekawa takes a dim view, predicting the global slowdown to weaken exports in the quarters ahead. Earlier this week, Japan's central bank chief said he expects the world's second-largest economy to stay stagnant for the time being but denied it was headed toward a deep slump.

While Japan is currently hurting under the pressure of volatile financial markets and escalating prices, the economy is likely to spring back to life once external factors stabilize, said Bank of Gov. Masaaki Shirakawa after the policy board left its key interest rate steady at 0.5 percent. In its statement, the Bank of Japan downgraded its overall view of the world's No. 2 economy, calling growth ``sluggish against the backdrop of high energy and materials prices and weaker growth in exports.''