The customs-cleared trade surplus rose 44.2 percent in July from a year earlier to 1.1378 trillion yen ($10.33 billion), Finance Ministry figures showed on Thursday, beating a median forecast of 882.4 billion yen in a recent Reuters poll.
"Although there have been some concerns about a negative impact on exports due to a slowdown in the US and Chinese economies, the data showed that external demand continues to support the Japanese economy," said Mamoru Yamazaki, chief economist at Barclays Capital.
Exports rose 14.3 percent from a year earlier, helped by sales of cars, steel, digital cameras and flat panel TVs. But compared with a month earlier, exports were down 0.3 percent, marking the second consecutive month of decline.
Imports rose 8.2 percent compared with last July as crude oil imports rose 22.5 percent, but were down 1.2 percent from June.
"Slowdowns in the United States and China have yet to pose a big threat to exports," said Morgan Stanley economist Osamu Tanaka, although he added that exports could drop towards the end of the year.
The yen rose marginally to 109.89 per dollar after the trade surplus was announced but by late afternoon it had slipped back to 110.13, much where it was in late New York trade.
The Nikkei stock average ended flat, with the stock market watching the oil price more than the trade figures. Exports to Asia were up 21.2 percent in July from the same month a year ago at 2.6305 trillion yen, the highest on record.
Exports to China were up 22.0 percent in July, helping reduce the deficit with that country by 22.2 percent from last year to 125.546 billion yen.
The data alleviated concerns about possible fallout from Beijing's measures to cool the Chinese economy.
"As far as exports are concerned, I think to China in particular, I don't see any levelling off over the next two quarters," Asian Development Bank chief economist Ifzal Ali told Reuters in an interview.
Many say Japan's trade with China may exceed that with the United States for the first time this calendar year. Japan imports more from China than anywhere else, and China is Japan's second-largest export market after the United States.
Previous data showed that exports to and imports from China and Hong Kong totalled 10.4 trillion yen for the first six months of 2004, exceeding the 10.0 trillion yen for the United States.