Japan Logs Record Trade Deficit, Recovery Seen

Japan logged a record trade deficit in January, government data showed on Monday, the clearest evidence to date of pain from a firm yen, a global slowdown and rising fuel imports needed to offset declining use of nuclear power.

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Japan's exports slumped 9.3 percent in January from a year earlier, slightly less than the median market estimate of 9.5 percent but still the fourth straight month of decline, in a sign the economy could struggle to recover even as reconstruction from last year's earthquake and tsunami proceeds.

Seasonal factors influenced the data, and economists expect exports to recover soon as global growth picks up. Still, the figures could feed into concerns about how much longer Japan can rely on exports to help offset its huge public debt.

"Special factors such as the earthquake last year, the nuclear problem, and a temporary slowdown in the global economy ... came together and pushed down the trade balance," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Exports are likely to return to surplus in the latter half of this year as a slowdown in emerging nations' economies is expected to stop around April-June."

The trade deficit came to 1.475 trillion yen ($18.59 billion), bigger than the median forecast of 1.468 trillion yen in a Reuters poll and surpassing the previous record of a 967.9 billion yen deficit in January 2009 in the wake of the global financial crisis, Ministry of Finance data showed.

Imports grew 9.8 percent from the same month a year earlier, more than the median estimate for a 9.5 percent annual rise.

Exports to China, the No.1 export destination for Japan, fell 20.1 percent from a year earlier, bigger than a 16.2 percent fall in the year to December, as the Chinese Lunar New Year holidays pushed down demand.

Japan recorded a 587.9 billion yen trade deficit with China in January, the largest on record.

A decision by the People's Bank of China on Saturday to cut the amount of cash banks must hold to boost lending could support views that Japan's exports to China will stabilize soon.

Exports to the United States rose an annual 0.6 percent, slowing from the previous month.

Japan logged its first annual trade deficit in more than 30 years for 2011 in the aftermath of the March earthquake that hurt exports and raised fuel import costs.

The dollar hit a six-month high versus the yen on Monday, adding to last week's rally after upbeat U.S. economic data added fuel to a rise sparked by the BOJ easing. The Bank of Japan surprised markets with a 10 trillion yen increase in its asset buying program and by setting an inflation goal of 1 percent.

The economy shrank more than expected in the October-December quarter as flooding in Thailand, a strong yen and weak demand hurt exports, after having rebounded in the third quarter from an earthquake-triggered recession.