Japan's exports rose in the year to August at less than half the pace expected as a global economic slowdown, a strong currency and Europe's sovereign debt crisis put Japan's own recovery increasingly in doubt.
The data is likely to provide little comfort as Japan's newly formed government tries to kick-start spending on reconstruction from the March 11 earthquake and tsunami to prevent a strong yen and waning global demand from snuffing out a rebound after the disaster.
Weak exports are also an ominous sign as the Federal Reserve could inch toward easing U.S. monetary policy, which could potentially push the yen even higher versus the dollar and worsen trade conditions for Japanese exporters.
The Fed is expected to decide at a policy meeting ending on Wednesday to stock up on longer-term Treasury notes to boost a fading economic recovery.
The impact of a slowing in the global economy is starting to become visible in Japan's export figures, said Takeshi Minami, chief economist at Norinchukin Research Institute.
In the coming months exports may go back to posting year-on-year declines, meaning the economy will have no sufficient support factor unless the government quickly implements reconstruction spending.
AUTOS UP, ELECTRONICS SLUMP
Exports rose 2.8 percent in August from a year earlier, much less than a median forecast for an 8.0 percent annual increase, Ministry of Finance data showed on Wednesday.
The gain was led by shipments of cars, which rose 5.3 percent, up for the first time since the March disaster, as automakers restored damaged supply chains.
But the yen's rise and slack global demand for electronics put a drag on overall export growth, ministry officials said. Japan's exports of electronic parts fell 16.4 percent, extending annual declines since the beginning of this year.
Shipments to China rose an annual 2.4 percent while those to the United States rose 3.5 percent.
Compared to the previous month, exports rose 0.3 percent on a seasonally adjusted basis, up for a fourth straight month, but the pace of growth slowed from July's 0.7 percent.
Imports rose 19.2 percent in the year to August, exceeding a 14.0 percent gain expected by economists, bringing the nation's trade balance to a deficit of 775.3 billion yen ($10.1 billion), the biggest on record for the month of August.
The hefty increase in imports, the biggest since June 2010, reflected persistently high crude oil prices and strong demand for liquefied natural gas (LNG) to make up for losses in nuclear power, after the March disaster triggered the world's worst nuclear crisis since Chernobyl in 1986.
Both import value and volume of LNG surged to a record high in August.
Economists say Japan's economy is likely to resume growing in the third quarter after three consecutive quarters of contraction, boosted by a rapid recovery in supply chains, but the outlook is increasingly murky as a strong yen and Europe's sovereign debt crisis erode exports.
The yen has gained about 5 percent against the dollar since July, threatening to derail the export-reliant economy's recovery from the March disaster.
A senior Japanese official kept up customary warnings to markets on Wednesday against pushing the yen up too far, saying that Japan remained ready to take firm action in the foreign exchange market if necessary.
The yen climbed to a one-month high of 76.11 yen to the dollar on Wednesday, heading toward a record peak hit last month of 75.941 yen, although the dollar staged a sudden spike and managed to steady near the previous day's close. By early afternoon it was around 76.35 yen.
Europe's woes, weak economic growth in other advanced countries and moderating growth in emerging markets top the agenda for a Group of 20 finance ministers' meeting this week.
($1 = 76.450 Japanese Yen)
(Writing by Stanley White and Tetsushi Kajimoto; Editing by Edmund Klamann and Michael Watson)