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Monday, June 21, 1999 Published at 07:31 GMT 08:31 UK

Business: The Economy

Big dent in Japan's trade surplus

Star Wars merchandise - one of the few import hits in Japan

Japan's trade surplus has shrunk by nearly a third, as the country's exports took a tumble.

The Bank of Japan, meanwhile, appears to have intervened on the currency markets to keep the yen cheap.

A strong yen hurts the Japanese economy, as it makes exports more expensive.

Exports down, imports down

Looking at the balance between imports and exports, Japan's economy is still making a surplus - selling about $7bn worth of goods more than it is buying.

But the recent strengthening of the yen has caused the overall volume of exports to drop by 11.8%.

This in turn made the trade surplus shrink by 31.5%.

Analysts are blaming the weakness of Europe's economy for the downturn. Satoru Ogasawara, economist at Credit Suisse First Boston in Tokyo, said: "Compared with last year's robust economic growth in Europe, the export fall showed that the economy in Europe has started to slow down."

Weak demand

The new trade figures, however, are a testimony that Japan's economy itself is weak as well. Not only are exports stalling, but domestic demand continues to be low.

Imports are still falling - albeit by a modest 3.3%.

The weak demand explains why the most closely watched segment of the trade balance - trade with the United States - has moved in the opposite direction.

The trade surplus with the United States climbed 14.9%, despite a drop in the volume of exports by 6.6%.

However, this was not enough to offset the dramatic slump in the value of imports, which plummeted by nearly a fifth.

Bank intervention

Another reason for the weakness of Japan's export industry is the recent strength of the yen.

Chris Calderwood at Jardine Fleming Securities in Tokyo said the drop in exports was a delayed reaction to the yen's rise since last October.

In an attempt to prevent a further strengthening of the Japanese currency, the Bank of Japan was reported to sell yen for US dollars during trading on Monday.

This follows a market intervention last Friday, when the Bank of Japan and the European Central Bank joined forces to prop up the euro and drive down the yen.

The US dollar rose nearly one-and-a-half yen to around 122 yen in Tokyo.

Expectations that the Yen will slide further boosted the Tokyo stockmarket, which finished at its highest level since October 1997.

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