April 20 (Bloomberg) -- Japan's trade surplus narrowed less than expected last month as exports jumped 18 percent on demand for cars and electronics, supporting growth in the world's second-largest economy.

The trade surplus shrank to 978.1 billion yen ($8.3 billion) in March from 1.11 trillion yen a year earlier, the Ministry of Finance said today in Tokyo. The median forecast of 32 economists in a Bloomberg News survey was for export growth of 14 percent and a 735 billion yen surplus.

Demand for Toyota Motor Corp. cars and Hitachi Ltd. plasma screen televisions have prompted the companies to increase production and investment. Accelerating growth in the U.S., Europe and China may further spur exports, helping the Japanese economy reach its longest postwar expansion later this year.

``It's quite encouraging that Japan is still posting strong export growth,'' said Richard Jerram, chief economist for Japan at Macquarie Securities Ltd. in Tokyo. ``This bodes well for the first-quarter economic outlook.''

Exports advanced for a 28th consecutive month. Automobile exports jumped 27 percent, while exports of electronics rose 13 percent.

Government bonds fell after the International Monetary Fund raised the nation's economic growth forecast, backing the case for the Bank of Japan to raise interest rates. The yield on the 1.8 percent bond due March 2016 rose 2 basis points to 1.9 percent as of 4:26 p.m. in Tokyo. Its yield climbed to 2 percent on April 18, the highest since Aug. 26, 1999.

Higher Energy Prices

Japan's trade surplus with Asia rose 3.7 percent to 673 billion yen, while its trade deficit with China was unchanged at 282.9 billion yen.

Imports gained 25 percent, in line with expectations, on rising oil prices and increased domestic demand. Heightened consumer and corporate appetite for imported goods and materials is driving growth. Imports rose for a 25th month.

Crude oil in New York rose to a record yesterday on concern tension over Iran's nuclear program will disrupt supplies from the world's fourth-largest producer. The average price of Dubai crude, a benchmark for Asian refiners, has advanced 51 percent in the past year. Japan imports virtually all its petroleum.

``There is no prospect that gains in oil prices will calm down any time soon,'' said Seiji Adachi, senior economist at Deutsche Securities Inc. in Tokyo. ``Higher oil prices will reduce Japan's trade surplus in nominal terms.''

Toyota, Hitachi

Toyota, the world's second-largest automaker, raised its U.S. market share for March to 14.2 percent, from 12.9 percent a year ago. Demand for fuel-efficient vehicles boosted Toyota's U.S. sales by 6.9 percent in March to a record.

The Toyota City, Japan-based automaker on April 18 said it spent about 33 billion yen on a domestic engine factory to meet demand for luxury Lexus ES sedans and RX sport-utility vehicles.

Hitachi, Japan's second-biggest plasma display maker, on April 4 said it will increase spending on production of panels by 29 percent to 200 billion yen. The company moved forward its target to produce 3.6 million panels a year to mid-2007.

``There is robust demand for Japanese goods from the U.S. and Asia,'' said Takuji Aida, chief economist for Japan at Barclays Capital in Tokyo.

Japan's two largest export markets are poised to keep expanding this year, fueling demand for exports in the coming months. The U.S. economy probably grew an annualized 5 percent last quarter, the fastest in more than two years, economists predict. China's economy grew at the fastest pace in at least a year in the first quarter as investment overshot government targets.

Seasonally Adjusted

China's government today said a surge in investment and lending that propelled first-quarter economic expansion of 10.2 percent needs ``attention,'' suggesting it will act to cool the world's fastest-growing economy.

On a seasonally adjusted basis, Japan's trade surplus rose 1.7 percent to 698.1 billion yen in March from a month earlier. Exports slipped 0.4 percent, while imports fell 0.7 percent.

Rising compensation, better employment opportunities and stock market gains are beginning to fuel consumer spending, which accounts for more than half of Japan's economy.

The economy will grow 2.9 percent in the current fiscal year ending March 31, and 2.2 percent next year, according to a median forecast of 16 economists surveyed by Bloomberg News. Consumer prices will probably keep increasing, compelling 13 economists to predict the Bank of Japan will raise interest rates from near zero at least once this year.

The Washington-based IMF yesterday said Japan grew 2.7 percent last year, up from its September forecast of 2 percent growth, and may expand 2.8 percent in 2006.

The expansion will become the longest since World War II if it continues through November.

To contact the reporter on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net

Last Updated: April 20, 2006 04:11 EDT