Japan exports rebound, but economy still not out of woods

* Sept exports +6.9 pct yr/yr vs f'cast +6.8 pct yr/yr

* Sept export growth fastest in seven months

* China slowdown, weak Europe threaten outlook

* Govt may run into problems on second-stage of sales tax

hike

(Adds comments from Abe's adviser regarding tax hike risks)

By Stanley White

TOKYO, Oct 22 (Reuters) - Japan's exports rose at the

fastest pace in seven months in September as sales to Asia

picked up, but signs of slowing global growth may hurt the

trade sector's ability to recharge the world's third-biggest

economy and keep up pressure for fresh stimulus.

In particular, cooling growth in China and an economic chill

in Europe - two key markets for Japanese exporters - are adding

to pressure on the Bank of Japan and the government to step up

policy support as the economy struggles to recover from the pain

of an April sales tax hike.

"Exports staged a rebound but they are still lacking

momentum as a trend, as Japanese carmakers and other firms are

shifting production abroad and global growth remains moderate,"

said Takeshi Minami, chief economist at Norinchukin Research

Institute.

"The bank may still insist that the economy is on track to

meet its inflation goal, but I see it will come under pressure

for fresh stimulus sooner or later."

A recent run of weak data including a shocking slump in

factory output prompted the government to cut its economic view

on Tuesday, raising speculation that it may roll out fresh

stimulus steps when it makes a decision on the second-stage of

the sales tax hike in December.

An economic adviser to Japanese Prime Minister Shinzo Abe

said on Wednesday that the next sales tax hike should be delayed

until April 2017, given the big risk that another tax increase

would pose to the fragile economy.

In that context, Wednesday's trade figures should be welcome

news to Tokyo. The 6.9 percent annual increase in exports in

September was roughly in line with a 6.8 percent gain expected

by economists, and the biggest rise since February. It follows a

1.3 percent year-on-year decline in August.

Exports to Asia, which accounts for more than half of

Japanese shipments, rose 8.1 percent in September from a year

ago due to growing demand for electronic parts and metals from

China and Vietnam, the data showed.

Sales to China also gained an annual 8.8 percent, but there

are worries as growth in Asia's economic powerhouse slowed to

its weakest since the global financial crisis in the third

quarter.

Exports have disappointed for much of this year because many

companies have shifted production overseas, tempering the

benefits of weaker yen. Now (NYSE: DNOW - news) , renewed turbulence in the global

markets on signs of a slowing world economy could snuff out any

gains in exports, hurt Japan's economy and complicate the

planned sales tax hike next year.

"Exports have not been growing the way the BOJ expected this

year and domestic demand is weak, so the BOJ will cut its growth

projections at the end of this month," Minami said.

Still, the Bank of Japan is expected to hold off from

launching a fresh round of stimulus in the near term, hoping

that domestic consumption will steadily pick up and help spur

growth.

EUROPE A WORRY

Underperforming exports have been one of the weak links in

the Japanese economy, which is struggling to cope with an April

hike in the sales tax to 8 percent from 5 percent.

Japan's economy shrank an annualised 7.1 percent in the

second quarter, with the tax hike causing the biggest

contraction since the 2009 global financial crisis.

The BOJ can take some comfort from the September export

data, though economists say the central bank would need to see

sustainable growth in shipments to feel confident about a

trade-led economic rebound.

In September, exports picked up momentum as Japan's

automakers shipped more cars to Britain and Saudi Arabia, the

data showed. Increased shipments of steel to India also pushed

exports higher.

Overall shipments to the United States rose 4.4 percent

on-year in September, though worryingly sales of cars fell an

annual 5.2 percent - a consequence of auto makers continuing to

shift production overseas.

The threat of recession and deflation in the euro zone also

weighed on demand there as exports to Europe grew only 0.7

percent on-year in September, slowing sharply from 5.6 percent

in August.

Japan's trade balance came to a deficit of 958.3 billion

yen(8.96 billion US dollar), wider than the median estimate for

a 777.0 billion yen deficit, as imports rose an annual 6.2

percent in September, ahead of the median pick for a 3.0 percent

increase.

While the economy is forecast to resume expansion in the

third quarter, the pace could be very slow, which would fuel

speculation that the government will delay a second sales tax

hike to 10 percent scheduled for next year.

The BOJ appears set to resist pressure for more easing or to

accept that its inflation target is unrealistically high, even

as growth fears roil global markets and Japan's economic

indicators weaken.

People familiar with its deliberations said the BOJ is

preparing to roughly halve its 1 percent economic growth

forecast for this fiscal year at a meeting on Oct. 31, but will

stand by its prediction that inflation will hit its 2 percent

target in the year from next April.

(1 US dollar = 107.0100 Japanese yen)

(Additional reporting by Tetsushi Kajimoto; Editing by Shri

Navaratnam)