Oct. 23 (Bloomberg) -- Japan's trade surplus widened in September to its highest in more than three years as exports gained for a sixth month on rising demand from the U.S. and China, extending a recovery in the world's second-biggest economy. The surplus rose a seasonally adjusted 8.9 percent to 986.1 billion yen ($9.1 billion), the Ministry of Finance said in Tokyo. Exports grew 3.4 percent, and imports rose 2 percent. The surplus was the highest since June 2000, according to Bloomberg data. Six months of rising overseas orders are prompting NEC Electronics Corp., Toyota Motor Corp. and other manufacturers to spend more on factories, fueling the fastest growth in 2 1/2 years in the second quarter. NEC Electronics yesterday said it will increase its investment plan for this fiscal year by a fifth and may build a new semiconductor production plant. ``Demand for mobile phones and DVD recorders is expected to be strong,'' NEC Electronics President Kaoru Tosaka told reporters at a briefing in Tokyo. Japan's recovery may be blunted by the yen's 8.9 percent gain against the dollar this year, which makes Japanese digital cameras and flat-screen displays more costly in overseas markets and reduces the value of earnings when they are converted into yen. The yen was at 109.12 to the dollar at 1:52 p.m. in Tokyo, compared with 108.99 in New York late yesterday. Japan's Topix Index had its biggest decline in two years on concern about the strong yen and after some U.S. companies indicated sales won't be as high as analysts forecast. The index fell 4.9 percent to 1021.06 at 1:52 p.m. in Tokyo. ``The Japanese economy is recovering little by little,'' Toyota president Fujio Cho said in a speech Tuesday in Tokyo. ``Any sharp and sudden fluctuations in the exchange rates aren't preferable.''
Capital Spending
Spending on machinery and equipment by exporters and other manufacturers is driving Japan's recovery from its third recession in 12 years. Capital spending accounted for four-fifths of Japan's 3.9 percent annual pace of economic growth in the second quarter. Exporters are benefiting from accelerating growth in the U.S. and China, Japan's two biggest overseas markets. China's economy grew 9.1 percent in the third quarter from a year earlier. Growth in the U.S. probably accelerated to an annualized 5.1 percent pace in the three months ended Sept. 30, according to a Bloomberg News survey last month. Toyota President Cho said this week the world's third-largest automaker by unit sales won more than 10,000 orders in the U.S. for its Prius hybrid cars. Toyota produces its hybrid cars, which are powered by gasoline engines combined with electric motors, only in Japan.
China Trade
Toshiba Corp., Japan's largest maker of notebook computers, said this month it plans to spend 200 billion yen in the year ahead to increase production of computers for small and medium- sized businesses. Trade with China, where Japanese companies such as Sony Corp. have built factories, rose to a record last month from a year earlier. Exports to China rose 42 percent to 588.6 billion yen. Imports rose 21 percent to 802 billion yen. The finance ministry does not provide details for adjusted figures. Economists had forecast Japan's trade surplus to widen to 1.02 trillion yen, seasonally adjusted, according to the median of 15 forecasts in a Bloomberg News survey. From a year earlier, the surplus rose 4.8 percent to 1.1 trillion yen. That compares with the median 1.2 trillion yen surplus forecast in a Bloomberg News survey of 32 economists. Exports rose 9.2 percent, led by autos, semiconductors and audio- visual equipment. Imports gained 10.5 percent, led by office equipment and clothing. For the six months ended Sept. 30, the trade surplus fell 0.8 percent from a year earlier to 50.6 trillion yen. Exports rose 4.9 percent during the period, and imports gained 6.3 percent.
Services Index
While manufacturers have led a more than 30 percent rally in both the Nikkei 225 Stock Average and the Topix Index in the past six months, growth hasn't spread to retailers and other non- manufacturers, economists said. Retailing is among the 10 worst performing sub-indexes of the 33-group Topix. A separate Ministry of Economy, Trade and Industry report today showed the tertiary activity index, which tracks demand at retail and other services, rose a seasonally adjusted 1 percent in August, after posting the biggest drop in five years in July. Economists in a Bloomberg News survey expected a gain of 1.2 percent, according to the median of 35 economists' forecasts. Credit Suisse First Boston in Tokyo estimates that a 10 percent appreciation in the yen reduces gross domestic product by about 0.3 percentage point over a year. Dai-Ichi Life Research Institute Ltd. estimates that it shaves 0.5 percentage point off gross domestic product. The yen ``is not a huge risk as long as it doesn't break 100,'' said Yoshimasa Maruyama, an economist at Mizuho Research Institute. //www.bloomberg.com