Japan's current account surplus grew more than expected in July, government data showed on Wednesday, as strong gains from overseas investments outweighed a narrowing of the trade surplus due to higher energy costs.
The data also showed Japan's exports remained robust, indicating that the economy has so far withstood a slowdown in its largest export market, the United States.
The strength of the income account could well help support the current account surplus in the coming months, when an expected slowdown in the US could drag on Japanese exports, economists said.
"The current account surplus is in a very moderate uptrend as the income balance is picking up at a faster pace," said Hiroshi Shiraishi, an economist at Lehman Brothers.
The current account surplus grew 7.1 percent to 1.81 trillion yen ($15.35 billion), the highest level ever for July, data from the Ministry of Finance showed. That was wider than the forecast in a Reuters poll for year-on-year growth of 3.7 percent to 1.75 trillion yen.
The surplus in the income account expanded 23.5 percent from a year earlier to 1.22 trillion yen as Japanese companies and investors reaped more returns from foreign investment they had made in the past.
The gains from overseas investment more than offset a narrowing trade surplus, which shrank 8.5 percent to 950.9 billion yen. But economists said a narrowing in the trade surplus was mainly due to a rise in the value of imports due to high oil prices. Exports rose for the 32nd month in a row on a year-on-year basis.
"We don't see any drastic adverse impact from the US economic slowdown," said Akiyoshi Takumori, chief economist at Mitsui Sumitomo Asset Management, referring to solid growth in exports, one of the main engines of the Japanese economy. Soaring oil prices continued to inflate the nation's import bill, boosting imports by 19.0 percent.
US crude futures hit a record high near $80 per barrel in mid-July. Exports also rose 13.6 percent in July, suggesting the scenario of a slower US economy curbing Japanese exports had yet to materialise. The data also showed exports to the United States grew 13.8 percent in July.
Some economists say that even if exports to the US slow in the future, growing exports to Asia and other emerging markets would likely cushion the effect. Oil prices have declined nearly 20 percent from peaks hit in July, meaning Japanese firms' profit margins will be less squeezed in the near future.
Still, weak data in recent weeks has raised expectation that the Bank of Japan will not raise interest rates again this year, after its first rate rise for six years in July.
The BOJ-sensitive two-year bond yield hovered on Wednesday just above a four-month low of 0.615 percent hit late last month. Revised data on Wednesday showed Japan's industrial production fell 0.9 percent in July from a month earlier on a seasonally adjusted basis, the same as a disappointingly low preliminary reading.
Surprisingly weak machinery orders data for July released on Monday also gave rise to the view that Japanese firms may slow their pace of capital spending in the months ahead, which would bode ill for the nation's economic recovery.
But most economists think any slowdown in the economy will be temporary and moderate, because private consumption will likely remain firm given that Japan's labour market is looking healthier than it has in many years. Japan's jobless rate stood at 4.1 percent in July, near the eight-year low of 4.0 percent hit earlier this year. Economists also expect the BOJ to maintain an optimistic view on the economy.
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