Japan's exports rose at a faster pace than expected in the year to September, suggesting that resilience in exports is underpinning the economic recovery despite a global slowdown and the strong yen.
Finance Ministry data published on Monday bodes well for the Bank of Japan which has stuck to its forecast of a moderate recovery, driven by the strength of emerging markets and rebuilding from a devastating March earthquake and tsunami.
The central bank meets on Thursday and will probably cut its economic forecasts because of slowing global growth, but keep monetary policy unchanged unless European debt crisis talks disappoint and trigger market upheaval.
The pace of recovery in exports is clearly slowing, and I'm not too optimistic about the outlook. The impact from slowing global growth will be felt more strongly, as well as the effect of yen rises, said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute.
The Bank of Japan will likely stand pat this week. If it were to ease, it would be in response to sharp yen rises.
The yen's persistent strength against the dollar continues to cloud the outlook for the world's No. 3 economy, which relies on exports as its main growth engine.
The dollar fell as low as 75.78 yen on trading platform EBS on Friday, surpassing its previous record low of 75.94 set in August and prompting a warning from Finance Minister Jun Azumi that Tokyo was ready to act in the markets.
The dollar/yen rate fell sharply, to between 75 and 76 yen, in a short time. This is an utterly speculative move and not reflecting the economic fundamentals at all. This is regrettable, Azumi told reporters.
If this move becomes excessive, we have to take decisive action. I have already instructed officials on Saturday to be prepared to take action.
Exports rose 2.4 percent in September from a year earlier, compared with a median forecast for a 1.0 percent increase, and followed a 2.8 percent climb in the year to August.
Imports increased 12.1 percent in September, against a forecast of a 12.6 percent rise.
The trade balance turned to a surplus of 300.4 billion yen ($3.95 billion) following the previous month's deficit. That compared with a median forecast of a 198.8 billion yen surplus.
Exports to Asia, which account for more than half of Japan's total exports, edged up 0.2 percent from a year earlier, with China taking in 2.7 percent more Japanese goods than a year ago while exports to the United States were up 0.4 percent.
The Japanese economy probably rebounded in the third quarter from the damage caused by the March 11 disaster but is expected to slow to a crawl in the final quarter due to an intensifying euro zone debt crisis that threatens to drag down the world economy, according to a Reuters poll.
Euro zone leaders are striving to agree on new steps to reduce Greece's debt, strengthen the capital of banks with exposure to troubled euro zone sovereigns and leverage the euro zone's rescue fund to stem contagion to bigger economies.
(Editing by Tomasz Janowski and Edmund Klamann)