Oil shakes Japan trade surplus

asia.cnn.com Monday, January 27, 2003 Posted: 9:08 AM HKT (0108 GMT)

Japan's trade surplus in December was smaller than expected

TOKYO, Japan (Reuters) -- Japan's trade surplus showed an unexpectedly small rise in December, as higher oil prices pushed up the value of imports and as exports showed signs of weakness in what could be a worrying sign for the struggling economy.

The Ministry of Finance said on Monday that the customs-cleared surplus rose 19.9 percent from a year earlier to 791 billion yen ($6.71 billion).

But exports fell 7.3 percent from the previous month and the surplus was lower than a median forecast for a rise of about 40 percent to 920 billion yen by economists polled by Reuters last week.

Economists said rising oil prices due to a looming conflict in Iraq and a crippling strike in Venezuela were partly to blame for the smaller-than-expected surplus, but added that exports -- one of Japan's few economic bright spots -- were also a concern.

"The trade gap was narrower than our forecasts due to a steep rise in imports, mainly because of the rise in oil prices," said Takeshi Minami, senior economist at UFJ Tsubasa Securities.

"The outlook for the domestic economy remains bearish, as today's figures give clear evidence that exports are falling."

Imports up 14% for year

Imports rose 1.2 percent from a month earlier, and were up 14.1 percent at 3.769 trillion yen from a year earlier.

Exports rose for the ninth straight month on a year-on-year basis, gaining 15.1 percent to 4.560 trillion yen.

A rebound in exports helped drag Japan out of its worst post-war recession early last year and had appeared to be holding up, despite a pause around the third quarter of 2002.

But the overall economy, beset by persistent deflation, a mountain of corporate bad loans and puny domestic demand, has failed to maintain its momentum.

"Looking at the export volumes...they're still pretty strong. Total export volumes were up 13.5 percent on the year, and exports to Asia were also very strong," said Matthew Poggi, an economist at Lehman Brothers.

"So while our forecast calls for somewhat slower external demand, it doesn't look like it's showing up in the trade numbers just yet. But certainly it's a concern going forward," he added.

For the whole of calendar 2002, the trade surplus rose 51.3 percent from the previous year to 9.930 trillion yen, with exports up 6.4 percent and imports down 0.6 percent.

Output data due soon

Industrial production figures out later this week are expected to show that output shrank in the October-December period for the first time in four quarters, boding ill for GDP figures for the period due out on February 14.

Some economists say Japan may be heading into its fourth recession in a decade, although the consensus view is for a period of meager growth for at least the first half of this year.

A major risk to that scenario is the looming U.S.-led war in Iraq.

By raising the price of the imported oil Japan depends upon, a conflict in the Gulf could damage growth prospects and expectations of a war have already weakened the dollar against the yen, making Japanese exports less competitive.

Separate data from the Finance Ministry showed that the value of Japan's customs-cleared imports of crude oil totalled a preliminary 492.858 billion yen ($4.18 billion) in December, up 51.3 percent from a year earlier.

The yen was at 117.82/85 to the dollar on Monday morning, having climbed from around 125 in early December, bringing frequent threats of intervention from Japanese Finance Ministry officials.