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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - There were no surprises for the Bank of Japan in the weaker
export data published this week, as the slowing China economy weighed in the
first quarter of the year, but MNI understands officials are now fixed on
whether the nascent signs of a recovery for the Chinese economy boost overseas
sales for Japanese manufacturers in Q2.
     The BOJ believes exports will likely follow a moderate upward trend with
the pick-up in overseas demand for capital goods expected to resume, supported
by the recovery in corporate fixed investment.
     The BOJ's real export index, calculated using Ministry of Finance trade
data, fell 1.8% q/q in the Jan-Mar period after a revised 0.5% gain in Q4. In
March, the Index fell 1.4% after a revised 3.6% gain in Feb.
     The BOJ revised the past data due to seasonal adjustments but, the BOJ
views, the underlying trend hasn't changed, as its in line with the March
assessment that "Exports have shown some weakness recently".
     Before the weaker data seen in Q1, the central bank had viewed exports as
being on an increasing trend.
     Overall, Japan's exports - a main driver for the economy -- fell 2.4% on
year in March. Although slightly better that the forecast, the decline
accelerated from February's 1.2% decline. Exports to China, which account for
almost a fifth of the total, declined 9.4% in March, more than reversing a 5.6%
gain in February.
     The weakness in exports to China in March surprised some, given the
relatively strong Chinese Q1 GDP data also published Wednesday.
     The decrease in China exports was led by lower shipments of metal working
machinery (-43.8% on year in March v. -21.8% in Feb), optical equipment (-23.7%
in March vs -12.0% in Feb) and chip-making equipment (-16.1% in March vs. +22.6%
in Feb).
     Exports of machinery to China, broadly linked to capital investment, fell
13.9% on year in March following a 16.3% gain in February. Exports to the
greater Asia region, which accounted for 53% of total Japanese exports, fell
5.5% on year in March for a fifth straight drop following a decline of 1.8% in
     Japan's exports and industrial production have both been hit by the slowing
Chinese economy in recent months, but BOJ officials expect the downside in the
two components to moderate in or around Q2 as Beijing's stimulus efforts kick
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