Japan's annual export growth slowed to its weakest pace in more than a year in January and the trade balance swung to a deficit for the first time in almost two years as shipments to China lost steam, but economists say the central bank's forecast for an export-led recovery remains intact.
Economists said the slowdown was likely to be temporary as underlying demand overseas was still strong and companies were likely to increase inventories.
Still, the data could be uncomfortable for the government and the Bank of Japan as turmoil in Libya and a recent spike in commodity prices cloud the outlook for export-reliant Japan.
Improvements in exports and industrial output prompted the government and the Bank of Japan to raise their economic assessments this month. But sluggish domestic demand and persistent deflation mean that the BOJ will stick to its ultra-easy monetary policy for the time being.
"China has started to tighten policy to slow its economy and this shows in January. China stopped tax breaks on cars in December, which also had an impact," said Takahide Kiuchi, chief economist at Nomura Securities.
"The slowdown in Japan's export growth in January is temporary and exports could continue as final demand overseas is still strong and the inventory cycle suggests there is more demand."
SHIPMENTS TO CHINA
The 1.4 percent annual rise in exports in January was the lowest growth since November 2009 and much slower than the median forecast for a 7.4 percent annual increase. That followed a 12.9 percent rise in the year to December.
Exports to Asia, which account for more than half of Japan's total exports, rose 0.4 percent from a year earlier, a sharp slowdown from a 14.8 percent annual increase in December and the smallest increase since October 2009.
Shipments to China, Japan's largest trading partner, increased 1.0 percent from a year earlier, a small fraction of the 20.1 percent annual increase in the previous month and also the smallest increase since October 2009.
The slowdown was mainly due to the Lunar New Year holidays, a finance ministry official said.
Japanese exporters limited shipments to China and other parts of Asia ahead of the holidays, which this year fell at the beginning February, compared with mid-February last year.
The ministry expects exports to those regions to return quickly to normal levels given their robust economic growth.
The trade balance came to a deficit of 471.4 billion yen ($5.67 billion), its first deficit in 22 months. That compared with the median forecast for a 60.0 billion yen surplus.
Japan's economy shrank slightly in the final quarter of last year, hurt by an expiry of government incentives for car purchases and a slowdown in exports, but is widely expected to resume growing in the current quarter as exports and industrial production pick up.
The central bank and the government both upgraded their assessment of the economy this month due to signs that export growth is boosting factory output.
Moody's Investors Service warned on Tuesday, however, that it may cut Japan's sovereign rating if government policies fall short of comprehensive tax reform needed to bring ballooning public debt under control.
That added to the woes confronting unpopular Prime Minister Naoto Kan, who is struggling to push bills needed to enact a $1 trillion budget for the year from April 1 through a split parliament while he grapples with a growing rift in the ruling party.
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