Asian Nations Pay in Yen, Helping Japan's Exports

The unexpectedly sharp rise in Japanese exports in January despite a still-strong yen reflects a notable development in the country's trade: More shipments are heading to thriving Asian markets and being paid for in yen, buffering Japanese exporters from the currency's strength.

Economists say the global financial crisis has accelerated Japan's increasing orientation toward Asia. High unemployment and personal debt have made the typical American consumer less of a focus for Japanese companies, compared with their wealthier Asian peers.

As this reorientation continues, analysts say that within the decade half of all Japanese exports may be paid for in yen, from around 40% last year. That's good news for Japan's export sector, the key driver of economic growth for the country's economy. Getting paid in yen instead of dollars or other foreign currencies shields Japanese companies from exchange-rate losses when sending those earnings back to headquarters in Japan.

By mitigating the negative effect of the strong yen, an increase in yen-denominated exports may cause the Japanese government to be less likely to intervene in currency markets, which it hasn't done since 2004. The rebound in exports also may strengthen the view that Japan's economy won't fall back into recession in 2010.

Japanese government data released Wednesday underscored how increasing demand from Asian markets for semiconductors, plastics and chemicals for manufacturing and construction is raising the country's exports.

Total exports jumped 40.9% compared with a year earlier to 4.902 trillion yen ($54.4 billion) in January, beating private economists' consensus forecast for a 36.4% rise. But shipments to Asia grew especially sharply: Exports to China increased 79.9% to 920 billion yen, while those to all of Asia rose 68.1% to 2.72 trillion yen. By contrast, exports to the U.S. rose only 24.2% to 710.4 billion yen.

As China and other high-growth Asian countries build more highways, skyscrapers and electronics for their burgeoning middle classes, demand for Japanese construction materials and electronics parts is set to continue surging. For example, operating profit at Asahi Glass Co. bounced back in the final quarter of last year due in part to strong LCD glass sales to China.