Japan's trade surplus widens in July despite export dip

Carmakers have been facing difficult times in global markets

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Japan's trade surplus has widened by more-than-expected in July, boosting optimism that the country's economy is continuing to recover.

The trade surplus was 72.5bn yen ($946m; £572m) in July.

However, the figures showed a bigger-than-forecast drop in exports, raising concerns about the strength of demand in key foreign markets.

Exports fell for a fifth straight month in July, down 3.3% from the same month a year earlier.

Analysts had expected exports to drop by a figure closer to 2.4% and said the discrepancy may be a sign that the strong yen was continuing to hurt Japan's manufacturers.

Naomi Fink, Japan strategist at Jeffries in Tokyo, said that while the export figures were not as good as hoped, there were still signs of recovery shining through.

She explained that Japanese firms have shown a bounce back, even if company profits and growth may not be as strong as in the boom years of 2000.

"There are a few more months of recovery to go," Ms Fink said.

Flip side

Continue reading the main story “ Start Quote The strong yen that hurts the export side is also helping to keep the price of imports in check” End Quote Naomi Fink Jefferies

While the strong currency may be a headache for companies looking to sell products abroad, it is also helping cut the cost of imports.

The Ministry of Finance data for July showed imports increased by a less-than-forecast 9.9% from a year earlier.

"On the import side we have several factors at play," said Jeffries' Ms Fink.

Following the earthquake and tsunami, Japan has scaled back its nuclear power production and is now using more oil and liquefied natural gas, which are priced in US dollars on the international markets.

At the same time, the government has called on consumer and companies to use less power.

There is "a higher need for fossil fuels as the percentage of energy consumed. But we also have a lot of conservation activity, so its not a one-for-one", she explained.

"The strong yen that hurts the export side is also helping to keep the price of imports in check."