UPDATE 2-Japan exports rise but reliance on China a worry

(For more stories on the Japanese economy, click [ID:nECONJP])

* Exports up 12.1 pct in December yr/yr, more than forecast

* China overtakes U.S. as Japan’s top export market in 2009

* China tightening, yen’s rise pose risks
(Adds more comments, background)

By Hideyuki Sano

TOKYO, Jan 27 (BestGrowthStock) – Japan’s exports in December rose
from a year earlier for the first time since before the financial
crisis hit, but a rising yen and a growing reliance on Chinese
demand may bode ill as Beijing looks to tighten monetary policy.

The bigger than expected 12.1 percent rise in exports came
largely thanks to a jump in demand from Asia, which took in more
than half of Japan’s total exports in the month.

“As Chinese authorities are trying to rein in overheating in
the economy, export growth will probably slow down a bit,” said
Hiroshi Watanabe, senior economist at Daiwa Institute of
Research.

Still, Japan’s export strength — the benefits of which have
had little impact on households or the domestic sector — looks
likely to keep the economy on the path to recovery for now.

“Japan’s economic growth is likely to accelerate towards the
end of this year, reducing the possibility of the BOJ taking
further easing measures,” said Kyohei Morita, chief Japan
economist at Barclays Capital.

“But given that the yen is likely to appreciate again on such
factors as China’s possible tightening, the BOJ may be prompted
to take steps to respond to market volatility.”

The yen hit a six-week high around 89.35 yen to the dollar
(JPY=: ) on Wednesday, getting closer to the 14-year high of less
than 85 yen per dollar hit in November.

The rise in exports in December beat a median market forecast
of a 7.6 percent gain and marked the first annual increase in 15
months, Ministry of Finance trade data showed on Wednesday.
[JPEXPY=ECI]

Economists said the headline figure suggested exports grew
solidly from November and shipments of machines, which had been
slow to recover, were picking up.

China replaced the U.S. as Japan’s biggest export destination
for the first time in 2009, Finance Ministry data showed.

For graphic on Japan’s exports by destination, click on

http://graphics.thomsonreuters.com/0110/JP_TRD20110.gif

Exports to China rose 42.8 percent on the back of strong
growth in the country, which grew 10.7 percent from a year
earlier in the three months to December. [ID:nTOE60K011]

Financial markets have been spooked by worries that growth in
Chinese demand could slow as Chinese authorities start pulling in
the reins on loans and liquidity to stave off inflationary
pressures.

Exports to the European Union also posted their first annal
rise in 17 months.

In contrast, shipments to the United States fell 7.6 percent,
a sign that improvements in the global economy remained uneven.

“Most countries around the world are seeing their economies
recover but improvements in advanced economies remain fragile,”
said Takeshi Minami, chief economist at Norinchukin Research
Institute.

“We can’t rely too much on strong growth in those countries,
so Japanese exports will continue to focus on shipments to Asia.”

The Nikkei share average (.N225: ) briefly hit a five-week low
as investors around the world dump shares on worries that the
global economy may not be ready for less stimulus just yet.

The yen’s surge in November, coupled with government pressure
for action to beat deflation, prompted the BOJ to put in place a
new funding operation in December.

Stock Market Trading

(Editing by Hugh Lawson)

UPDATE 2-Japan exports rise but reliance on China a worry