Japan's Exports Rebound, China Becomes No. 1 Customer

By Toru Fujioka

Aug. 21 (Bloomberg) -- Japan's exports rebounded in July as China replaced the U.S. as the nation's largest customer.

Shipments overseas rose 8.1 percent from a year earlier, after declining for the first time since 2003 in June, the Finance Ministry said today in Tokyo. Shipments to China climbed 16.8 percent to a record, with the value surpassing those sent to the U.S. for the first time.

Today's number may not be enough to alleviate concern that waning global demand will tip the world's second-largest economy into a recession. The Bank of Japan this week described growth as ``sluggish'' for the first time in a decade, citing weakening exports as well as higher commodity costs.

``The rise in exports doesn't necessarily mean they're solid,'' Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo, said before the report was published. ``It just shows exports are going to slow gradually rather than drastically as demand from Asia and Europe weakens.''

The yen traded at 109.61 per dollar as of 9:20 a.m. in Tokyo from 109.75 before the report. The median estimate of 18 economists surveyed by Bloomberg News was for exports to increase 5.3 percent.

Exports to Asia advanced 12.7 percent to the highest ever. Shipments to the U.S. fell 11.5 percent, the 11th monthly decline. Exports to Europe gained 4.1 percent, the first increase in three months.

Import Bill

Imports climbed at the fastest pace in two years, surging 18.2 percent from a year earlier, as oil prices soared to a record. That caused the trade surplus to narrow 87 percent to 91.1 billion yen ($830 million), the ministry said.

The biggest drop in exports in seven years caused the economy to shrink last quarter, robbing it of the main driver of its longest postwar expansion. Gross domestic product declined an annualized 2.4 percent in the three months ended June, the worst reading since the third quarter of 2001, when Japan was in a recession.

``Exports aren't strong enough to propel the economy as the slowdown spreads worldwide,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``The economic stagnation will become clearer.''

Toyota Motor Corp., Japan's biggest company, this month reported its biggest earnings decline in five years as U.S. sales slumped. The automaker on Aug. 7 scrapped its goal of selling 10.4 million vehicles in 2009.

Toyota's Sales

``Growth in exports is expected to remain only modest for the time being, due to the slowdown in overseas economies,'' the central bank said in its monthly report yesterday.

Even demand from Asia, the destination of about half of Japan's goods sent overseas, has waned this year as accelerating inflation prompted central banks to raise interest rates, slowing growth in the region. A recent easing of commodity costs may revive shipments to Asia and other emerging markets, according to economist Richard Jerram.

``If the recent decline in commodity prices is sustained, then it should allow growth in Japan's major export markets to pick up in 2009,'' said Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net