Japan's customs-cleared trade surplus expanded in July, as exports grew due to a recovery in US consumer demand and as the impact of the severe acute respiratory syndrome (SARS) virus receded.

The surplus rose 7.3 per cent from a year earlier to 799.2 billion yen (US$6.77 billion), according to Ministry of Finance (MOF) data released yesterday.

That was slightly less than forecast by economists in a Reuters poll, which saw a median surplus of 890 billion yen (US$7.54 billion).

The surplus in July was up 3.5 per cent from a month earlier at 753.7 billion yen (US$6.39 billion) on a seasonally adjusted basis.

Japan's economy, while posting growth for the sixth straight quarter in April-June, remains heavily dependent on exports as demand at home slowly picks up.

Exports accounted for one-third of a rise in the gross domestic product (GDP) for the April-June quarter.

April-June GDP grew a real 0.6 per cent from the previous quarter, or 2.3 per cent year-on-year.

Exports gained in July after a dip in June, and were up 5.6 per cent from a year earlier, and up 1.1 per cent from a month earlier on a seasonally adjusted basis.

Imports were up 5.3 per cent year-on-year and were up 0.6 per cent month-on-month.

The surplus with the United States, Japan's largest trading partner, was down 6.2 per cent in July from a year earlier at 570.1 billion yen (US$4.83 billion), but that drop was smaller than a 21.7 per cent fall in June.

Most economists said they felt the fall was temporary and saw a rebound ahead.

"We do not expect weakness in US demand to be long-lasting because we are forecasting the US corporate sector - labour and capital spending - will gradually recover," said Toshikimi Kaneki, an economist at Sumitomo Trust and Banking Co.

A MOF official concurred, saying exports to the United States have been lacklustre but could pick up if the US economy recovers later this year.

With the impact from the SARS virus receding, exports to Asia as a whole rose 12.7 per cent, compared with a 3.8 per cent increase in the previous month.

Both exports and imports to Asia as a whole were the second-highest on record in terms of value, the MOF said. Exports were worth 2.17 trillion yen (US$18.41 billion), up 12.7 per cent, while imports came to 1.70 trillion yen (US$14.47 billion), up 11.6 per cent.

Exports to China were at a record high at 588 billion yen (US$4.98 billion), mostly for parts for mobile phones and home videogame players. Exports to China have been firm despite the impact of the SARS virus as Japanese companies shift production overseas, the MOF said.

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