UPDATE 3-Japan export growth slows, feels pinch of yen

Published 10/25/2010, 06:18 AM

* Sept exports rise 14.4 pct yr/yr vs forecast 9.6 pct gain

* Annual export growth to Asia slowest since November 2009

* G20 agreement may make it difficult for Japan to intervene

* Dollar hits fresh 15-year low versus yen (Adds comments from senior government official)

By Rie Ishiguro

TOKYO, Oct 25 (Reuters) - Japan's exports trumped expectations in September, but the seventh consecutive slowdown in annual growth showed the economy was feeling the pinch from the strong yen and slackening growth in its overseas markets.

The 14.4 percent increase from a year earlier well exceeded economists' expectations, which some analysts took as a sign that exports were proving more resilient to the currency's strength and global headwinds than some had initially feared.

"The global economic slowdown and a strong yen indeed have had a negative impact on the economy but the data supports the view that the recovery trend has not disappeared," said Yoshimasa Maruyama, an economist at Itochu Corp.

Maruyama predicted exports to bottom out in the next six months and start regaining pace some time after that.

The headline figure came above a market consensus forecast of a 9.6 percent rise and just below a 15.5 percent rise in August, Ministry of Finance data showed on Monday.

Yet the numbers, which also showed shipments dipping 0.1 percent from the previous month, and renewed downward pressure on the dollar bode ill for the Japanese policymakers, struggling to keep the economic recovery intact.

Investors interpreted a Group of 20 agreement over the weekend to shun competitive devaluations as a green light to resume dollar selling, driving it to a fresh 15-year low against the yen.

While the yen is now trading above levels at which the Japanese authorities intervened last month analysts say the G20 agreement will make it harder for Tokyo to justify another foray into the currency markets.

Fresh evidence of the pain inflicted by the yen's strength came in the form of a media report that Toyota Motor Corp will revise its expected dollar/yen rate to 80 yen from 90 yen for the remainder of its business year ending in March, which will slash operating profit by 150 billion yen ($1.84 billion). A Toyota spokeswoman declined to comment on the report.

Acknowledging the pressures, the government last week downgraded its view of the economy for the first time in more than a year. The Bank of Japan is also expected to cut its outlook at a policy meeting this week.

Analysts expect no significant economic upturn at least until early next year as the expiration of government subsidies for low-emission cars is set to hit factory output.

Kazuo Mizuno, a senior government official in charge of analysing underlying economic trends, signalled that Japan may be headed for further weakness in the economy.

"Output is expected to fall in July-September (from the previous quarter) and in October-December, given the expiration of government subsidies," Mizuno told Reuters on Monday.

"Seven out of eight times in the past, two straight quarters of output falls have led to a recession in Japan," said Mizuno, deputy director-general of the Cabinet Office's economic assessment and policy analysis.

EXPORTS TO ASIA

Slowing growth in shipments of cars and steel accounted for the slowdown in overall export growth, the data showed.

Annual growth in exports to Asia, which account for more than half of Japan's total exports, slowed to 14.3 percent from 18 percent in August to its slowest pace since November 2009, showing that Japan is getting less support from fast-growing Asian economies.

Shipments to China, Japan's largest trading partner, were up 10.3 percent, also the slowest annual rise since November.

Exports to the United States rose 10.4 percent in September from a year earlier, while Europe took in 11.2 percent more of Japanese goods than a year earlier, the data showed.

The slowing trend will likely keep market expectations alive for further monetary easing by the BOJ. The central bank is expected to stand pat on policy at its rate review on Thursday but its more solemn view of the future will leave the door open for further action later this year. (Additional reporting by Kaori Kaneko; Editing by Tomasz Janowski and Chris Gallagher)

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