Japan's trade surplus widened in May for the 11th straight month as exports to China held up despite concerns about Beijing's efforts to cool an overheating economy, government data showed on Wednesday. But the surplus of 934.2 billion yen ($8.56 billion) was slightly below the median forecast of 950 billion yen in a recent poll, and doubts linger about the sustainability of Japan's export-led economic recovery. "I think it was just slightly below expectations, but not too far off. It looks like export growth was just slightly less than I expected," said Peter Morgan, senior economist at HSBC Securities. The customs-cleared trade surplus rose 30.6 percent from the previous month on a seasonally adjusted basis and was up 35.5 percent from a year earlier. Exports were up 9.8 percent from a year earlier and up 7.3 percent from a month earlier, while imports were up 4.9 percent year-on-year and up 1.5 percent month-on-month. Imports of crude oil fell, however, for the first time in five months in terms of volume, slipping a preliminary 19.4 percent year-on-year.
Crude oil demand was hurt by the closure of a refinery in eastern Japan due to a fire, other refinery shutdowns for maintenance and a resumption of operations by some nuclear power plants that had been closed for safety checks. Market reaction was subdued, with currency traders focused more on prospects of a U.S. credit tightening and geopolitical risks. The dollar was hovering around 108.80 yen . Economists were divided on the outlook for exports to China. "As far as these figures show, there is no clear sign of a slowdown in demand in China. Steel exports, electronics parts, they're all up on a year-on-year basis," said Takehiro Sato at Morgan Stanley in Tokyo. The trade deficit with China shrank 21.5 percent from a year earlier.
"Many people expected demand from China would slow down but that's actually not the case, which is negative for bonds," said Hiroyuki Kubota, bond market director at Research and Pricing Technologies Inc. Most economists agreed that the U.S. economy was still the most important factor for Japanese exports. Kiichi Murashima, economic and market analysis director at Nikko Citigroup, said Japan's exports to China are likely to slow in the near future in line with declining fixed investment in China. "The overall trend-setter for Japan's exports is still the United States, and the state of the U.S. economy will be closely watched especially from the second half of this year to next year," Murashima said. The surplus with the United States, Japan's largest trading partner, was down 4.9 percent from a year earlier at 486.3 billion yen. ($1=109.13 yen)///