Trade blow for Japanese economy

Japanese carmakers have flourished in the US but conditions are tougher now

The weakening US economy has taken its toll on Japanese exports, raising more questions about how its economy will cope with a slowdown in global growth.

Exports to the US fell 11% in the first quarter of 2008, the largest three-monthly fall in four years, as car sales were softer than predicted.

Overall export levels rose at their slowest rate in three years, suggesting the economic crunch is already biting.

Economists said the figures were worrying for the export-led economy.

Business confidence is already at a four-year low.

Key indicator

Domestic demand remains fragile and strong export growth has largely driven the improved performance of the Japanese economy over the past 18 months.

An export slowdown would squeeze corporate revenues and keep companies from raising much profit Takeshi Minami, Japanese economist

"Exports hold the key to Japan's economic outlook," said Takeshi Minami, chief economist at the Norinchukin Research Institute.

"An export slowdown would squeeze corporate revenues and keep companies from raising much profit."

The fall in Japan's massive trade surplus - down 30.2% on an annualised basis to 1.119 trillion yen ($10.8bn) in March - was much larger than analysts had expected.

In addition to the weak US performance, export growth to Europe and the rest of Asia both slowed, with sales to China notably lower in March.

Economists have warned that Japan will struggle to maintain its recent strong growth rates in the event of a sharp slowdown in the global economy.

Toyota and Honda, two of the country's largest exporters, reported a 2.7% and 4.5% rise in first-quarter sales respectively.