June 19, 2013 / 5:31 AM / 7 years ago

UPDATE 2-Japan's exports pick up pace, give economy momentum in rough markets

* Exports +10.1 pct yr/yr in May vs +6.5 pct forecast
    * Japan logs trade deficit for 11th straight month
    * Higher energy costs continue to weigh on trade balance

    By Kaori Kaneko and Stanley White
    TOKYO, June 19 (Reuters) - Japan's exports rose in May at
the fastest annual rate in more than two years with the help of
a weak yen and a moderate pick-up in global demand, boding well
for the government's efforts to steer the economy through market
    The faster-than-expected rise is welcome news for Prime
Minister Shinzo Abe after recent a sell-off in stocks,
volatility in bonds and a spike in the yen raised concerns about
the outlook for his economic recipe of radical monetary easing,
fiscal stimulus and pro-growth policies.
    Calculated in yen, exports rose 10.1 percent in the year to
May, compared with analysts' 6.5 percent forecast in a Reuters
poll, rising for a third straight month and at the fastest pace
since December 2010, finance ministry data showed on Wednesday.
    The weaker yen also boosted the energy-heavy import bill,
which rose 10 percent from a year earlier, leaving Japan with a
994 billion yen ($10.4 billion) trade deficit, but economists
said the net effect of the yen's retreat remained positive.
    They argue that higher export revenues translate into higher
exporter earnings and consequently more investment and workers'
bonuses, with indirect benefits for the broader economy even if
costlier imports also affect businesses and consumers.
    Given the blue-chip index in Japan's stock market is heavy
on exporters, Abe's government also hopes that the export
windfall will shore up general business and consumer confidence.
    Keeping general sentiment buoyant is seen as crucial to
spurring consumption and investment as policymakers aim to pull
Japan out of its liquidity trap and end nearly two decades of
economic stagnation and deflation. 
    "It is obvious (Abe's) policy mix played a big role in
weakening the yen, which helped export value, earnings and the
stock market," said Takeshi Minami, chief economist at
Norinchukin Research Institute.        
    That is why analysts are not too concerned about the modest
pace of recovery in export volumes, which remained 4.8 percent
below year-ago levels, though the gap continued to narrow from a
5.3 percent drop in April and a 15.8 percent slump in February.
    The yen lost over a fifth of its value against the
dollar in the 12 months to the end of May and even after recent
gains remains about 17 percent below year-ago rates at around 95
to the dollar, a level many Japanese companies say they feel
comfortable with. 
    That and improved demand from Japan's top export markets
make analysts optimistic that exports will continue to recover
and the trade gap will narrow.
    Exports to the United States rose 16.3 percent from a year
earlier, the fastest pace since May 2012, while shipments to
China rose 8.3 percent, the quickest pace since February 2011.
    "We can certainly say that exports are headed in the right
direction," said Shuji Tonouchi, senior fixed income strategist
at Mitsubishi UFJ Morgan Stanley Securities.
    "The breakdown shows that export volumes are still a little
weak. Demand from the United States is doing well and Japan's
trade deficit should eventually shrink."
    The yen's retreat, combined with high costs of fuel Japan
must import while its nuclear reactors remain idle since the
Fukushima disaster in March 2011, has kept Japan's trade in
deficit for 11 straight months now.  
    At the same time, it has helped bolster Japan's hefty
surplus on its overseas investment income, bringing its current
account - the broad measure of trade flows and other transfers -
back into the black.
    Japanese financial markets have seen extreme volatility over
the past few weeks on worries about reduced stimulus from the
U.S. Federal Reserve, which caused the yen to bounce from a 
4-1/2-year low against the dollar. 
    An underwhelming package of structural reforms unveiled by
the Japanese government recently and concerns about slowing
growth in China have also contributed to the tumult in markets. 
    With the heavy artillery of fiscal and monetary stimulus
already deployed, Japanese policymakers have few options rather
than hope that recovery seen in the early months of this year
takes root.
    The world third-largest economy grew at an annualised 4.1
percent in the first quarter, better than the initial estimate,
underlining a steady recovery on an uptick in global demand and
the government's sweeping stimulus policies.
    For more background about this data, please access this
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