RECOVERY in Japan’s exports slowed in July as slackening overseas demand and the yen’s strength weigh just as the economy is about to pull out of a recession triggered by the massive earthquake and tsunami that struck in March.

    Exports inched up from June and were down more than expected in comparison with July 2010. But economists said demand from emerging markets should keep Japan’s overall economic recovery on track despite doubts about the strength of the upturn.

    Business confidence edged up in August and is expected to improve further as manufacturers bring back output to pre-disaster levels, though companies voiced increasing unease with a rising yen, a Reuters Tankan survey published yesterday ahead of trade data showed.

    “Exports were a little weaker than expected. Focus is on whether foreign demand will continue to weaken amid recent signs of global economic weakness,” said Maiko Noguchi, senior economist at Daiwa Securities Capital Markets in Tokyo.

    “The yen has appreciated over an extended period and this of course is negative for exports. But a bigger theme is the state of the global economy going forward and potential weakening in demand for Japanese exports.”

    Exports fell 3.3 percent in July from a year earlier, compared with a median forecast for an 2.4 percent annual decline and following a 1.6 percent decline in the year to June, Ministry of Finance data showed.

    Compared with the previous month, exports rose 0.8 percent, slower than a 5.4 percent rise in June.

    Imports rose 9.9 percent in the year to July, less than the median estimate for an 10.9 percent annual rise.

    Imports are rising due to increased demand for oil and liquefied natural gas from abroad to make up for shutdowns of nuclear reactors in Japan.

    The nation’s trade balance registered a surplus of 72.5 billion yen (US$947 million), a touch above the median forecast for a 71.0 billion yen surplus.

    The yen, which gained about 5 percent against the weakening U.S. dollar since early July, showed no reaction to the data.

    The currency climbed well past levels around 80 to the dollar, which major exporters have been using in their earnings estimates, prompting calls for government action from Japan’s main business lobby.

    Japan intervened by selling its own currency and eased monetary policy Aug. 4, but the moves have offered little respite to exporters as the yen remains near an all-time high of 76.25 to the dollar.

    The Reuters Tankan manufacturing sentiment index in August rose five points from July to plus 6, meaning optimists outnumbered pessimists. The index for non-manufacturers rose four points to plus 7, the highest since December 2007.

    Manufacturing and service-sector sentiment indexes are expected to improve to plus 13 and 14, respectively, over the next three months.

    Japan’s economy could grow in the third quarter at the fastest pace among major industrialized nations as supply chains bounce back from the March 11 earthquake and tsunami.(SD-Agencies)