(For economists’ reaction to data, click [ID:nT230890]) (Recasts, changes headline)
By Yoko Nishikawa
TOKYO, Nov 21 (Reuters) - Japan’s exports hit a record high in October, boosted by European and Asian demand, but a fall in sales to the United States underscored concern that a downturn in the world’s biggest economy could hurt Japan’s growth.
China is set to overtake the United States as Japan’s biggest export destination this year for the first time in modern history, although many of the goods shipped there and to the rest of Asia are assembled into products that are then exported to the United States.
“If the U.S. economic slowdown is prolonged, robust demand in Asia and emerging nations may not be enough to keep exports strong,” said Junko Sakuyama, economist at Dai-ichi Life Research Institute.
“While its presence may have diminished somewhat, the United States undoubtedly remains a huge consumer of goods.”
Financial markets reacted little to the trade data, but worries about the U.S. economic outlook and expectations for further U.S. monetary easing pushed the yen to a two-year high. The rise in the yen in turn hurt shares, with the benchmark Nikkei average .N225 hitting a 16-month closing low. [FRX/] [.T]
Overall exports increased 13.9 percent from a year earlier to a record 7.5155 trillion yen ($68.5 billion) despite a stronger yen, above a market median forecast for a 12.4 percent rise, data from the Ministry of Finance showed on Wednesday.
Imports rose 8.6 percent, boosted by crude oil import costs [ID:nT268444], leaving Japan with a trade surplus of 1.0186 trillion yen ($9.27 billion), up 66.1 percent from a year earlier.
Exports to the United States fell 1.5 percent from a year earlier, hurt by declines in shipments of cars and construction machinery, as the world’s largest economy digests problems in the subprime mortgage sector and resulting market turbulence.
That followed a 9.3 percent annual drop in September, the biggest decline since November 2003. It is the first time exports to the United States have fallen for two months in a row since April-May 2004.
But shipments to China, which has already replaced the United States as Japan’s biggest trading partner, climbed 19.2 percent from a year earlier and those to Asia rose 12.9 percent.
Shipments to the EU jumped 23.7 percent, supporting overall export growth.
“Exports to the United States fell, but not to such an extent that showed subprime problems were taking a severe toll on Japanese exports,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“But it’s worrying that a slowdown in exports of cars and construction machinery is becoming noticeable.”
Resilient exports helped push up Japan’s economic growth to a firm 0.6 percent in the July-September quarter from the preceding three months, or an annualised 2.6 percent.
But economists expect Japan’s economy to grow at a slower pace in October-December as support from exports is seen easing on a further U.S. slowdown and higher oil prices.
The clouded outlook for the U.S. economy and global markets has pushed back expectations for a rate hike by the Bank of Japan from the current 0.5 percent.
“I expect Japanese exports to slow down more than the BOJ thinks in the coming months as I doubt exports to Europe will continue to grow so strongly,” Minami said.
“Given such risks ahead, I still think the BOJ cannot raise rates at least until July-September next year.”
Swap contracts on the overnight call rate JPONIBOJ=TRDT do not fully price in a BOJ rate hike to 0.75 percent until the end of next year. The BOJ’s policy board meets next on Dec. 19-20. (Editing by Hugh Lawson)