Weak Japan exports, hit by Europe, raise questions on recovery
TOKYO (Reuters) - Japan's exports slumped by their most in six months in July, dragged down by collapsing shipments to debt-ridden Europe and a sharp fall in sales to China, fuelling worries that fragile recovery in the world's third-biggest economy could stall.
The 8.1 percent annual fall was far deeper than economists' median forecast of a 2.9 percent drop. And a 25.1 percent plunge in exports to the European Union, the biggest such drop since Oct 2009, saw Japan post a record trade deficit with the region.
Wednesday's data heightened concerns that overseas demand for Japanese goods may not recover before strength in domestic spending, which has been underpinned by reconstruction spending after last year's earthquake, begins to fade.
It also followed weak export indicators from South Korea and Taiwan, two other economies heavily reliant on exports, underscoring concern about the impact of slowing global demand on Asian economic activity
"Europe's debt crisis is the first factor to pull down exports, and the pace of decline is striking. This is comparable to the post-Lehman situation," said Masayuki Kichikawa, chief Japan economist at Bank Of America Merrill Lynch in Tokyo.
"We hoped domestic demand in China would support Japan's economy, but the story is different."
The strength in Japan's domestic demand is seen petering out toward the end of this year, and policymakers were counting on exports to big markets like China to make up for the slack and keep the economy on course for a recovery.
Exports to China fell an annual 11.9 percent in July.
Reflecting the sharp decline in exports, the Ministry of Finance figures showed Japan ran a trade deficit after logging a surprise surplus in June.
Imports rose 2.1 percent in July from a year earlier, against the median forecast for a 3.1 percent increase.
Japan's economy is expected to outpace most other G7 countries with growth of 2.2 percent projected for the fiscal year to March, a Reuters poll showed, as robust domestic demand make up for some of the weakness in exports.
But analysts expect the world's third-largest economy to struggle in coming quarters due to slowing overseas growth.
The Bank of Japan is becoming less convinced about its forecast the economy will resume a recovery toward early next year. But it hopes to stand pat on monetary policy for as long as possible to save its limited further options, after having expanded monetary stimulus in February and April.
(Reporting by Leika Kihara; Writing by Tomasz Janowski; Editing by John Mair)
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