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Japan posts trade surplus on U.S. exports, corp mood improves

By Rie Ishiguro and Tetsushi Kajimoto

TOKYO (Reuters) - Japan's first trade surplus in five months and a revival of confidence among manufacturers has added to evidence the economy was growing again as the yen weakens and external demand picks up, reducing the need for further monetary policy easing.

Exports to the United States in February rose at their fastest annual pace in more than a year, with auto exports jumping by more than a quarter, supporting the government's view the economy is picking up after contracting in late 2011.

"Japan's economy should be able to recover as overseas economies stabilize and as we rebuild from the earthquake. Export competitiveness is improving, so this takes some pressure off the central bank," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Still, we're likely to see trade deficits in the future as we have to import more energy due to the declining use of nuclear power."

The February trade surplus of 32.9 billion yen ($393 million) was a sharp turnaround from a record deficit of 1.476 trillion yen in January, and wrong-footed analysts who had been looking for a deficit of 120 billion yen.

Providing comfort to the export-reliant corporate sector, the yen slumped to an 11-month low against the dollar in the wake of a surprise easing by the Bank of Japan last month.

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Trade balance, exports graphic

http://link.reuters.com/vyq65s

Graphic on exports by destination

http://link.reuters.com/far65s

Graphic on Reuters poll http://link.reuters.com/wep27s

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EXPORTS DOWN, IMPORTS UP

Exports to the United States surged 11.9 percent in February from a year earlier, the biggest rise since Dec 2010, powered by a 26.9 percent rise in auto exports.

Still, total exports fell 2.7 percent from a year earlier, but that was much smaller than economists' median forecast of a 6.4 percent decline and the 9.2 percent drop in January.

Exports to Asia fell, although the pace of decline slowed as shipments to Thailand rebounded after the disruption caused by last year's flooding.

Imports rose 9.2 percent in February from a year earlier, against a forecast for an 8.4 percent increase, boosted by high energy prices and strong demand for fuel to make up for idled nuclear power plants.

Last year, Japan logged its first annual trade deficit in 31 years in the aftermath of the March earthquake that broke supply chains and sent fuel imports surging.

"U.S. auto demand was firm but auto exports to Europe continued to slump," said a finance ministry official. "The outlook is still unclear. We want to closely watch the U.S. economy's performance and exchange rate moves."

The dollar fell about 0.4 percent to an intraday low near 83.14 yen after the surprise surplus but later pared some losses.

SENTIMENT IMPROVES

Separately, the Reuters Tankan's manufacturers' sentiment index rose 13 points to plus 2, the biggest monthly gain since June 2009, and was seen holding at that level in three months.

The index, derived by subtracting the percentage of pessimistic responses from optimistic ones, suggested the next Bank of Japan quarterly tankan survey, due on April 2, could also show a marked improvement.

"The possibility of additional BOJ easing has declined from an economic perspective," said Taro Saito, senior economist at NLI Research Institute.

"But there is still a chance of it happening depending on political pressure and the outlook for U.S. monetary policy."

A Bank of Japan policymaker sounded a note of caution about the economy's outlook due to Europe's lingering debt crisis and a potential spike in fuel costs amid tensions between the West and Iran.

"Tensions over Europe's debt problems have subsided somewhat due to progress in Greece's aid package, but we cannot rule out the possibility of problems deepening again, triggering financial market turmoil and a sharp fall in trade," said BOJ board member Hirohisa Morimoto in a speech to business leaders in Kobe, western Japan.

The cautious remarks suggest that the central bank remains on alert for risks and is ready to ease monetary policy further if its forecast of a moderate recovery in the first half of the fiscal year that starts in April is threatened.

The BOJ last month expanded its asset buying scheme by 10 trillion yen and set a 1 percent inflation goal. It stood pat this month, overruling a lone proposal for more stimulus and disappointing some in markets.

(Additional reporting by Sumio Ito and Kaori Kaneko; Editing by John Mair and Michael Perry)

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