April 25 (Bloomberg) -- Japan's trade surplus widened to a record in March, buoyed by a weaker yen and exports to China, which replaced the U.S. as the nation's largest trading partner.

The surplus rose 74 percent to 1.633 trillion yen ($14 billion) from a year earlier, the Ministry of Finance said today in Tokyo. Exports climbed 10.2 percent, in line with the median estimate of 14 economists surveyed by Bloomberg News.

Toyota Motor Corp. and Canon Inc. anticipate higher demand from China and Europe to help them weather an imminent slowdown in the U.S., where exports grew at the slowest pace in more than two years last month. Shipments to China and Europe rose to a record, today's report showed.

``While the slowdown in the U.S. economy is becoming clearer, growth in the euro region and China has been offsetting the effect on Japan's exports,'' said Azusa Kato, an economist at BNP Paribas Securities Japan Ltd. She said exports may suffer in coming months as the effects of slower U.S. growth spread to the global economy.

The yen traded at 118.45 per dollar at 4:13 p.m. in Tokyo, compared with 118.57 before the report was published. Economists expected the surplus to widen to 1.38 trillion yen.

Imports were unchanged, failing to rise for the first time in three years, as oil prices declined. Analysts predicted a 4.2 percent drop.

China, Europe

Exports to China expanded 15 percent last month, and those to Europe advanced 14 percent, the Finance Ministry said. Shipments to the U.S., Japan's largest market, rose 2.4 percent, the slowest pace since January 2005.

China overtook the U.S. as Japan's largest trade partner in the year ended March 31, the Finance Ministry said.

Goods to China accounted for about 15 percent of total shipments last fiscal year, today's report showed, closing in on the 22 percent sent to the U.S. Exports to China rose 21 percent in the period, almost double the 11 percent increase to the U.S.

Toyota, Japan's largest company, sold more cars and trucks than General Motors Corp. for the first time last quarter, helped by global demand for fuel-efficient models. Toyota last week forecast sales in China to climb by at least a third this year.

Honda Motor Co., the world's second-largest maker of gasoline-electric cars, plans to increase Chinese sales by more than a fifth as it taps demand for fuel-efficient automobiles.

Canon Inc., the world's largest maker of digital cameras, expects sales to Europe to expand 15 percent this year, more than three times faster than sales growth in the U.S. The Tokyo-based company's European sales outstripped those to the U.S. in 2006.

`Biggest Risk'

China's economy, the world's fourth largest, will expand 10 percent this year, little changed from 10.7 percent in 2006. Growth in the U.S. is expected to slow to 2.2 percent in 2007 from 3.1 percent, according to the International Monetary Fund.

``The direction of the U.S. economy is the biggest risk for the Japanese economy,'' said Yoshiki Shinke, an economist at Dai- Ichi Life Research Institute in Tokyo. ``The U.S. can achieve a soft landing, which will help Japan avoid a decline in exports.''

The yen's decline is also boosting exports. Japan's currency has fallen 12 percent in the past year against the euro, 3 percent per dollar and 7 percent against China's yuan, Bloomberg data show.

Japan's trade surplus, a source of tension with the U.S. in the 1980s and 1990s, has attracted less attention as Treasury Secretary Henry Paulson urges China to strengthen the yuan.

Export Volume

European officials are more concerned by the yen's slump. European Central Bank President Jean-Claude Trichet said Japan's currency should reflect ``economic fundamentals'' after it fell to a record against the euro on April 16.

Exports measured by volume, which exclude price fluctuations, were flat in March, indicating the currency's weakness is helping increase exports by value. By volume, shipments slipped 1.3 percent the previous month. Import volumes fell 6.8 percent, the second consecutive drop after rising 13 months through January.

A slide in oil prices from last year's record levels is causing import growth to slow, widening the surplus. The price of Dubai crude, a benchmark for Asian refiners, has fallen 10 percent since reaching a record $72.10 last July. Japan imports virtually all of its oil, which accounts for 17 percent of the country's import bill.

Net exports, or the difference between exports and imports, probably added 0.3 to 0.4 percentage point to economic growth in the first quarter, according to Yuichiro Nagai, an economist at Barclays Capital in Tokyo. The contribution, more than the 0.1 percentage point exports provided in the fourth quarter, may cause growth to exceed economists' expectations, Nagai said.

The world's second-largest economy probably expanded at an annual 1.7 percent pace last quarter after surging at its fastest rate in three years at the end of 2006, according to the median estimate of 18 economists surveyed by Bloomberg News this month. The Cabinet Office is scheduled to release first-quarter gross domestic product figures on May 17.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net

Last Updated: April 25, 2007 03:15 EDT