September 25, 2008 / 2:48 AM / 11 years ago

UPDATE 4-Japan logs trade deficit, BOJ cautious on outlook

(For more stories on Japan’s economy click [ID:nECONJP]) (Adds comments by Yosano, MOF’s Sugimoto)

By Tetsushi Kajimoto and Hideyuki Sano

TOKYO, Sept 25 (Reuters) - Japan’s trade balance swung into its biggest effective deficit in more than 25 years in August as exports to the United States fell by the biggest amount on record, underscoring economists’ views that Japan is in recession.

Excluding January, when Japanese exports tend to drop on slower factory activity in the New Year holidays, it was the first deficit since 1982, when Japan was reeling in the aftermath of an oil crisis.

With Japan’s export-reliant economy suffering from sky-high oil prices and slowing exports, a Bank of Japan board member warned of more U.S. economic turmoil, expecting Japan’s economy will not show signs of recovery until the second half of 2009.

“Demand from not only the United States but also Europe and Asia has been faltering, and it is likely to continue at least until the end of this fiscal year,” said Satoru Ogasawara, a strategist at Credit Suisse.

Exports edged up 0.3 percent in August from a year earlier, short of a median forecast for a 2.4 percent rise, Ministry of Finance data showed on Thursday. [JPEXPY=ECI]

Imports grew 17.3 percent versus an expected rise of 21.1 percent, as the import value of crude oil hit a record high, bringing Japan’s trade balance to a deficit of 324 billion yen ($3.06 billion), against a deficit of 400 billion yen expected. [JPTBAL=ECI]

For a graphic on Japan’s trade balance, click on:

here

Exports have been losing steam this year as the year-long mortgage crisis has taken its toll on U.S. financial markets, as well as Europe and Asia, hurting the main driver of Japan’s economy, the world’s second-largest.

“The Japanese economy is weakening,” Vice Finance Minister Kazuyuki Sugimoto told a news conference. “We’ll keep a close watch on economic developments in future.”

JAPAN’S PATH?

Bank of Japan board member Tadao Noda said the U.S. economy could face a deeper adjustment after several major U.S. financial institutions collapsed or came close to it in recent weeks.

“Just as Japan learned in the 1990s, financial institutions whose capital has been damaged have no choice but to be cautious about corporate lending,” said Noda, a banking industry veteran.

“Finance serves as the lifeblood of the economy, so if there is clogging that is bound to have an impact on the real economy,” Noda said in a speech in northern Japan.

While repeating the bank’s line that the economy will eventually return to growth, Noda said he expected world economic growth to recover only in 2010 after slowing in 2008 and 2009.

“In the near term, downside risks to the economy are more visible” than upside risks to prices, he told a news conference.

Takeshi Minami, chief economist at Norinchukin Research Institute, said: “The BOJ may have to watch downside risks to the global economy more closely than upside risks to prices, which are easing due to the peaking of crude oil prices.”

Financial markets, which are focusing more on details of Washington’s plan to support banks, expect the BOJ to keep rates on hold at 0.50 percent for at least a year.

Economics Minister Kaoru Yosano echoed the view that a BOJ rate cut would not significantly help the economy as it would be unlikely to prompt businesses to borrow more money to invest. [ID:nT193515]

SPREADING WOES

Japan’s exports to the United States fell a record 21.8 percent in August, marking the 12th straight month of annual declines, on sluggish shipments of automobiles.

Exports to the European Union slipped, the third fall in four months, leaving solid demand from emerging economies including oil-producing nations as the only cushion against weak exports.

Exports to Asia were up 6.7 percent, and those to China — now Japan’s No.1 export destination — rose 8.8 percent.

Economists say an easing of oil prices since July, while positive for Japanese consumers and companies in the long run, may have put a brake on Japanese exports to resource-rich countries, adding to the downward momentum of overall exports.

Japan’s economy shrank in the second quarter at its sharpest rate in seven years as crumbling U.S. and European export markets hit factories, and consumers tightened their belts in the face of high energy and grocery prices.

The government has effectively acknowledged that Japan is in recession, ending a growth cycle that began in early 2002. It measures the start of a recession from the point at which growth begins to slow, which varies from a more widely used definition of two straight quarters of contraction in GDP. ($1=105.81 Yen) (Additional reporting by Yuzo Saeki and Yasuhiko Seki; Editing by Michael Watson)

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