China overtook the United States as Japan's biggest export destination in 2007 for the first time in modern history, a symbolic move that has softened the impact of a deepening US slowdown on the Japanese economy.
But many of the goods shipped to China are assembled into products that are then exported to the United States, and economists say the world's largest economy still holds the key to Japan's economic outlook.
"As the US economy slows down further, Japanese exports will likely slow but only moderately as emerging economies and oil-rich countries will help support Japanese shipments abroad," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.
Exports to China, which has already replaced the United States as Japan's largest trading partner, totalled 17.4 trillion yen last year, data from Japan's Ministry of Finance showed on Thursday. This includes exports to Hong Kong.
Shipments of electronic devices and organic compounds were brisk. "Japan's basic materials industry has been robust recently, and demand for their products is stronger in China than in industrialised nations," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Shipments to the United States declined 0.2 percent to 16.9 trillion yen in 2007, falling for the first time in four years. In December, US-bound exports fell 4.5 percent from a year earlier, marking the fourth straight month of decline. The data met a muted reaction from market players, who were preoccupied with recent market upheaval triggered by the US housing market mess.
Despite recent sluggishness in exports to the United States, overall exports have been resilient and supported the nation's growth thanks to strong shipments to Asia and other emerging economies. But fears of a US recession, market mayhem and weak housing investment at home due to tighter building rules have almost wiped out expectations for a rate hike in Japan this year, and markets are now pricing in a possible rate cut instead.
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