Japan's trade surplus for March increased to 663.72 billion yen ($6.11 billion) from 7.49 billion yen in the same month a year earlier - the largest since December and beating market expectations for a 490 billion yen surplus, according to data from the Ministry of Finance Monday.
Exports jumped 16.1% year on year to a near three-year high of 7.38 billion yen while imports grew 5.7% to a 14-month high of 6.71 billion yen.
For the first three months of the year the surplus was 554.22 billion yen compared with a deficit of 201.01 billion yen a year ago.
"While export values rose in March, the rebound in exports slowed significantly across the first quarter and external demand is unlikely to provide much of a tail wind to growth this year." Capital Economics Japan economist Tom Learmouth said.
Exports experienced the "steepest growth in outbound shipments since November 2017 on signs the economy continued to recover from last year's COVID-19 slump," the ministry said.
Broken down exports of transport equipment rose 11.9%, machinery grew 18.7% and semiconductors rose 9.8%. By destination exports to China increased 37.2%, Taiwan 13.6%, Hong Kong 15% and South Korea 111.2%, the ministry data showed.
"Most exports to China aren't very high-tech, and there's the possibility there will be restrictions amid rising U.S.-China tensions," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Imports to Japan rose 5.7% on year to a 14-month high of 6.71 billion yen in March - above market expectations for a 4.7% rise and followed an 11.8% rise in February. The ministry said the boost in imports suggested "further recovery in domestic demand in the wake of the pandemic." Purchases of electrical machinery grew 10.3% and all other goods rose 6.5%, boosted by scientific instruments. There was a big rise in imported chemicals. Purchases from China were up 10%. However, goods from Australia were down 8.5%, the data showed.
Japan's economy will likely face headwinds from a slower recovery in U.S.-bound shipments, which tend to add more value than those exported to China and elsewhere in Asia, for at least another couple of months, Minami said.
The 16.1% annual rise in export values in March was stronger than the Bloomberg median of a 12.2% rise. "The impressive annual figure was down to base effects from the weakness in exports in March 2020," Learmouth said.
"With goods exports already well above pre-virus levels they're unlikely to rise much further this year. Indeed, the new export orders component of the manufacturing PMI suggests that export growth will slow this month," he said.
"Japan's record exports to Asia in March show external demand broadening beyond China and providing firmer support for the economy...The data reinforce our view that exports will play a key role in sustaining the recovery as another virus wave hits the country." Bloomberg Economics' Yuki Masujima said.
