Japan's exports fell at the fastest pace in five months in the year to October, underscoring mounting concerns that sputtering global growth and a strong yen will take their toll on the world's No.3 economy as policymakers brace for contagion from the euro zone debt crisis.

The 3.7 percent decline in exports in the year to October comes after the Bank of Japan warned last week that Europe's debt crisis may deal a blow to the world economy, saying that it was already affecting emerging economies and Japan in various ways.

The weak data is an added concern for policymakers grappling with the yen's rise and slackening demand overseas, with the central bank under pressure to ease monetary policy further after keeping it on hold last week.

Policymakers and private-sector economists expect the economy's growth to slow down in October-December after rebounding from a disaster-triggered recession in the previous quarter, while counting on planned reconstruction spending to underpin a slowing economy.

Exports will likely continue to fall for the next few months as the global economy is expected to continue to have an adverse impact, said Takeshi Minami, chief economist at Norinchukin Research Institute.

There is a chance that the BOJ will adopt further easing steps within this fiscal year. It is not yet a real crisis situation but the impact from Europe's debt woes is gradually affecting other economic regions.

Exports fell 3.7 percent in October from a year earlier, much worse than a 0.3 percent annual decline expected by economists.

That followed a 2.3 percent rise in the year to September and was the biggest drop since a 10.3 percent annual fall in May.

Lower shipments of semiconductors and electronics dragged down exports, as the yen weighs on overall shipments.

Exports to China, Japan's largest trading partner, slumped an annual 7.7 percent. Shipments to the United States fell an annual 2.3 percent, while those to Europe fell an annual 2.9 percent.


Policymakers worry that a strong yen could hinder the export-reliant economy's recovery from the impact of the March 11 earthquake and they intervened to stem the yen's rise on October 31, after the Japanese currency surged to a record high of 75.31 yen against the dollar.

The BOJ was spotted selling yen on several occasions in the days that followed the last month's mammoth $100 billion intervention as the yen resumed its rise. The Japanese currency was trading at around 77 yen versus the dollar.

Imports were up 17.9 percent in October from a year earlier, against an expected 15.2 percent gain, bringing the trade balance to a deficit of 273.8 billion yen ($3.6 billion). That marked the first deficit in two months and compared with a median forecast of a 39.9 billion yen surplus.

Japan's trade surplus has been shrinking, with the balance swinging to a deficit a few times since the March disaster as exports slumped due to damaged supply chains while imports continued to increase on high oil prices and solid demand for crude oil and natural gas to make up for a loss of nuclear energy.

Japan's economy grew 1.5 percent in the third quarter, rebounding from a recession triggered by the March earthquake and tsunami, on the back of exports and private consumption, with companies quickly mending damaged supply chains and restoring factory output.

But the pace of growth is likely to slow down the road as a strong yen and weak global growth cloud the outlook.

The central bank kept monetary policy unchanged on Wednesday but toned down its economic assessment and voiced concern about possible fallout from Europe's debt crisis, signaling readiness to ease policy again if the nation's recovery came under threat.

(Editing by Joseph Radford)