Japan's Exports Grow 3.7% as Asian Shipments Offset U.S. Slump

By Jason Clenfield and Lily Nonomiya

June 25 (Bloomberg) -- Japan's exports grew at twice the pace economists estimated in May, as accelerating shipments to Asia helped the economy withstand a slump caused by falling demand from the U.S. and Europe.

Exports, which contributed at least half of Japan's growth in the past three quarters, rose 3.7 percent from a year earlier after climbing 3.9 percent in April, the Finance Ministry said today in Tokyo. The gain was faster than the 1.9 percent median prediction of 18 economists surveyed by Bloomberg News.

Asia, the destination of half of Japan's goods sent abroad, supported exporters including Idemitsu Kosan Co. even as the yen gained 14 percent and shipments to Europe fell for the first time in more than two years. Exports to the U.S. declined for a ninth month, and sales may worsen after consumer confidence in Japan's biggest overseas market dropped to a 16-year low.

``We expect exports to slow from here. In trend terms, it's already happening,'' said Hiroshi Shiraishi, an economist at Lehman Brothers Holdings Inc. in Tokyo. ``Looking ahead, we think Asian economies will slow because of inflation, and in the U.S., the fundamentals of the consumer economy are pretty bad.''

The Nikkei 225 Stock Average slipped 1 percent as of 1:06 p.m. in Tokyo on concern that the drop in U.S. household confidence will reduce demand for the nation's cars and electronics. The yen was little changed at 107.76 per dollar.

Exports to Asia climbed 8.1 percent from a year earlier, and those to China gained 12.3 percent, led by shipments of steel, automobiles and oil products. Japan's refiners sent extra fuel to China as part of relief efforts following the May 12 earthquake that killed more than 69,000 people.

Idemitsu's Expansion

Idemitsu Kosan, Japan's second-biggest refiner, said this month that may double its storage and pipe capacity within the next three years to tap Asia's rising demand.

``The strength of exports to China and other Asian countries became more prominent,'' said Junko Nishioka, a senior economist at ABN Amro Securities Japan Ltd. in Tokyo. ``Japan's economic growth will keep slowing, but it can probably avoid a contraction.''

Imports advanced 4.4 percent from a year earlier as oil prices surged to a record, narrowing the trade surplus by 7.6 percent to 365.6 billion yen ($3.4 billion), the ministry said. Economists expected a surplus of 30 billion yen.

While eroding profits, the commodity price shock is also increasing sales of Japanese cars and construction equipment to resource-rich markets. Shipments to Russia, the world's biggest exporter of oil and gas, soared 58.8 percent last month.

Exports to the U.S. fell 9.5 percent and shipments to Europe slid 1.1 percent, the first drop since October 2005.

Slowdown Spreading

``With the U.S. and European economies slowing, we're going to see that start to spread to the global economy,'' said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. ``Given the ongoing slump in the U.S. economy, the question is whether U.S.-bound exports will get even worse or will just be unimpressive.''

The World Bank said this month it expects global growth to slow to 2.7 percent this year from 3.7 percent in 2007 because of surging prices and the subprime credit crisis.

Japan may lose the boost that sales overseas have been providing throughout its longest postwar expansion. Exports have grown less than 4 percent on average in April and May, slowing from 6.2 percent in the first quarter. Economists predict net exports won't contribute to economic growth this quarter.

Businesses are paring production and spending on concern that demand will weaken and record oil prices will further crimp profits. Sentiment at large manufacturers marked the biggest drop in four years this quarter and companies said they plan to cut spending by 0.9 percent this year, a report this week showed.

``Eventually we're going to see more signs of an export slowdown,'' Lehman's Shiraishi said. ``But I admit, we've been saying that for a long time.''

To contact the reporters on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net; Jason Clenfield in Tokyo at jclenfield@bloomberg.net.