Japan exports tumble as global downturn bites

TOKYO (Reuters) - Japan's exports tumbled nearly 10 percent from a year earlier in the first 20 days of October, evidence of how quickly the global economy deteriorated after the financial crisis struck in mid-September.

Other data showed Japan's current account surplus in September halved from a year earlier, corporate bankruptcies hit their highest level this year and sentiment in the services sector hit a record low.

Japanese companies also relied more heavily on bank loans as the financial turmoil made it more costly by comparison for them to issue commercial paper (CP).

Japan's exports fell 9.9 percent from a year earlier in the October 1-20 period, putting the trade balance into the red during that time, Ministry of Finance data showed on Tuesday.

"Since the Lehman shock, demand in the United States and Europe has fallen sharply, which is hitting Japan's economy hard," said Hiroshi Watanabe, an economist at Daiwa Institute of Research.

Economists say Japan, the world's second-biggest economy, is teetering on the edge of recession. Third-quarter gross domestic product figures are due out next Monday.

Central bank Deputy Governor Hirohide Yamaguchi promised lawmakers that the Bank of Japan, which cut its benchmark rate to 0.3 percent from 0.5 percent on October 31, will stay focused on downside risks to the economy.

"It will take a significant time before conditions for Japan's economic recovery fall into place," Yamaguchi told an upper house parliamentary committee.

Japan's trade surplus has all but evaporated in the past couple of months, as high prices of oil and other raw materials boosted the value of imports, while exports languished as the global economy weakened in the face of its worst crisis in decades.

The current account surplus in September fell 49 percent from a year earlier to 1.5 trillion yen ($15 billion), the finance ministry said.

The latest figures underscore the sharp fall in Japanese exports after the collapse in September of Lehman Brothers unleashed the financial storm that has prompted countries globally to pledge more than $4 trillion to support their economies and financial systems.

The 20-day trade data, which normally attracts little market attention, does not give a breakdown of exports or destinations. Trade figures for the full month of October are expected to be announced around November 20.

A gauge of service-sector workers -- called "economy watchers" for their proximity to consumer and retail trends -- showed on Tuesday that confidence hit an all-time low of 22.6 in October, down from 28.0 in September.

Lending by Japanese banks rose 2.2 percent in October from a year earlier, outpacing a 1.6 percent rise in September, the first pickup in lending growth in four months, BOJ data showed.

But that is because companies are increasingly turning to bank loans as the cost of issuing commercial paper and corporate bonds has risen owing to the financial turmoil, analysts said.

BOJ data shows average rates for one-month commercial paper rose to 1.03 percent in October from 0.78 percent in September and 0.66 percent in August, compared to the BOJ's target rate of 0.50 percent in those months.

Outstanding commercial paper issued in Japan fell 8.5 percent in October from a year earlier, the biggest drop since February 2007, the BOJ said.

While Japan's CP rates have not been hit as hard as those in the U.S. markets, where rates for low credit rating issuers shot up above 6 percent, Japanese investors are becoming cautious in the wake of the global financial turmoil.

"Faced with somewhat tight funding conditions, companies are inclined to secure funds from banks," said Susumu Kato, chief economist at Calyon.

Tight financial conditions and a weakening economy are also leading to increased bankruptcies.

Japan's corporate bankruptcies rose 13.4 percent in October from a year earlier to 1,429 cases, the highest level this year, a research firm said on Tuesday.

A record eight listed companies went bankrupt in October, seven of them in real estate and construction-related industries.

Japan's economy shrank at the fastest pace in seven years in the second quarter, and some economists think it may have contracted again in the July-September third quarter, which would meet the common definition of a recession.

However, the median forecast in a Reuters poll on third-quarter GDP suggested the economy skirted a recession by growing 0.1 percent.

Even if that happened, next year may be different. The IMF has forecast that developed economies will shrink in 2009 for the first time in half a century.

($1=97.92 Yen)

(Additional reporting by Leika Kihara, Yasuhiko Seki and Yuzo Saeki; Editing by Michael Watson)