TOKYO (REUTERS) - Japan's export growth fell well short of expectations in September, a sign that slowing demand in Asia is taking the shine off Prime Minister Shinzo Abe's stimulus policies and clouding the outlook for a budding economic recovery.

Some analysts said a sharp drop in export volume may offset the boost from a weak yen, which tends to give a competitive advantage to Japanese goods sold overseas, and could mean external demand will shave off some third-quarter economic growth.

Despite the weak trade data, the Bank of Japan on Monday raised its assessment for all nine regional economies and its governor stressed that the world's third-largest economy will continue to recover - due mostly to robust domestic demand.

"Japan's economy is making steady progress toward achieving the BOJ's 2 per cent inflation target," BOJ Governor Haruhiko Kuroda told a quarterly meeting of the bank's branch managers.

Exports rose 11.5 per cent in September from a year earlier, less than a median market forecast for a 15.6 per cent increase and 14.6 per cent growth in August, trade data from the Ministry of Finance showed on Monday.

A notable slowdown was in exports to Asia, which rose just 8.2 per cent in September after increasing 13.5 per cent in August, suggesting that weak demand in countries such as Indonesia and Thailand - big markets for Japanese automakers - was taking a toll.

Real exports, which the BOJ calculates by stripping out the effect of price changes, is considered a good indicator of volume trends: It fell 4.4 per cent in September from the previous month.

"The positive effect of the weak yen may have run its course. We might not see a marked improvement in exports from here if the recovery in overseas growth does not pick up," said Junko Nishioka, chief Japan economist at RBS Securities.

China's latest trade data showed a similar pattern with exports down 0.3 per cent in September from a year earlier, the Customs Administration said on Saturday.

Exports to Southeast Asia, China's fastest growing export market in the past year, dived to a 17-month low in September, reflecting slack demand and the strengthening of the Chinese yuan, economists said.

Japan's economy expanded for three straight quarters in April-June as Prime Minister Shinzo Abe's stimulus policies boosted business sentiment and personal consumption.

Analysts expect Japan to avoid a sharp downturn in the third quarter as robust domestic demand continue to offset softness in exports.

A Reuters poll, taken before Monday's trade data, showed analysts expect Japan's economy to expand 0.6 per cent in the July-September period from the previous quarter.

Still, policymakers are counting on overseas growth to pick up in time to make up for an expected slump in personal spending after Japan raises its sales tax in April next year.

That assumption may have shaky grounds. The International Monetary Fund cut its world growth estimate for this year to just 2.9 per cent, saying that a stronger performance in most advanced economies would fail to make up for more sluggish expansion in the developing world.

In a quarterly report issued after the branch managers'meeting, the BOJ raised its assessment of all of Japan's nine regional economies, pointing to signs that companies are starting to increase hiring and salaries.

But Shigeki Kushida, who as head of the BOJ's Osaka branch oversees the Kinki region of western Japan, said exports lacked momentum in his area, which is home to electronics giants such as Panasonic Corp.

"I am a little worried about emerging markets, particularly emerging Asia," Kushida told reporters after the meeting.

"We see good demand for electronic parts, but demand for materials and intermediate goods - such as exports of steel or machinery to Asia - is not doing so well."

Nomura Securities said in a research note on Monday they expect external demand to shave 0.2 percentage point off Japan's economic growth in the July-September quarter.

With the weak yen inflating the cost of importing fuel, Japan logged a trade deficit of 932 billion yen (S$11.8 million)in September, running a negative balance for the 15th straight month, the trade data showed.

In the April-September fiscal first half of this year, Japan ran a trade deficit of 4.99 trillion yen, a record amount on a fiscal half-year basis, the data showed.