Japan unexpectedly posted a Y63.9bn ($679m) trade deficit in October, intensifying concerns that the country is being pushed deeper into recession.
Exports fell 7.7 per cent year-on-year last month, while imports slowed sharply to an increase of 7.4 per cent, compared with a 28.8 per cent surge in September.
Japan has been doubly affected by the downturn in global markets and the rise of the yen against the currencies of its main export markets, particularly the US and European Union. Earlier this week, the Japanese government conceded that the country had fallen into recession.
The October figure was the first deficit for the month in 28 years, reflecting a fall in exports to the rest of Asia, which fell for the first time in nearly seven years.
It follows the first trade deficit in 26 years, which was logged in August this year, when the economy was hit by high import prices and weak demand for Japanese goods overseas.
While the rise in import prices has subsequently eased, the fall in exports has been much more rapid than expected.
“Considering the speed of decline in exports ... even if imports decelerate, the trade balance looks likely to stay in the red through [the January to March quarter of] 2009,” said Kyohei Morita, chief economist at Royal Bank of Scotland in Tokyo.
Mr Morita warned that the drop in exports, which was led by transport equipment, such as cars, would probably continue to depress domestic demand, since the industry supported a broad range of other industries.
Consequently, “there is a steadily strengthening possibility that Japan will slip into deflation”, given that households are likely to turn cautious at a time when capital spending is already on a downward trend.
Japan has only recently re-emerged from a long period of deflation and the Bank of Japan raised interest rates twice in 2005 for the first time in six years to 0.5 per cent.
The BoJ was forced to lower rates again last month to 0.3 per cent as the yen rose and the downturn from the global crisis hit Japan hard.
Import prices remained high, despite the sharp fall in oil prices, the government said. Imports rose 7.4 per cent, for the 13th consecutive increase, because of high oil, coal and liquefied natural gas.
Shipments to China, which had supported demand even as shipments to the US and Europe had declined, fell 0.9 per cent, marking the first decline since May, 2005.
Exports to the US and Europe posted double-digit declines year-on-year.
