TOKYO (AP) — Japan's trade deficit widened to its largest level in five months in July, adding to worries over the recovery amid weakening demand in China for chemicals, machinery and electronics.
Though exports rose 7.6 percent from a year earlier, imports fell just 3.2 percent, less than forecast. The resulting 268.1 billion yen ($2.2 billion) deficit reported Wednesday compared with a deficit of 70.5 billion yen ($566 million) in June and was the biggest since Feburary.
Japan's economy contracted at a 1.6 percent annual pace in April-June after a 4.5 percent expansion in the first three months of the year, sapped mainly by weaker than expected consumer spending, though exports also were a drag on growth, falling at a 16.5 percent annual pace.
"The trade deficit widened in July, and should continue to rise in coming months as the weaker yen pushes up import costs," Marcel Thieliant of Capital Economics said in a research note.
Lower costs for imports of oil and gas thanks to the drop in crude oil prices have reduced Japan's trade deficit in recent months. The deficit in July was therefore 72 percent lower than in the same month a year earlier.
China's recent move to devalue the yuan, making its own products more price competitive in overseas markets, has further deepened unease over the trade outlook.
The Japan External Trade Organization, or JETRO, issued a report Tuesday showing declining exports in the first half of the year to China, Japan's biggest trading partner.
Measured in dollar terms, demand for imports of electronic devices — a mainstay of Japanese manufacturing — was nearly flat while exports of machinery fell 12.3 percent and exports of chemicals fell nearly 11 percent, it said.
Asian exporters are all seeing a weakening in exports, accentuated by slowing Chinese demand, Mizuho Bank noted in a research note.
"As such, even in the midst of robust U.S. demand now, electronics exports from Asia have not been able to record gains seen in the pre-2007 period," it said.
Japanese manufacturers have long relied on strong exports to compensate for weak demand at home, and the recovery of demand in the U.S. is helping to offset China-related weakness in Asia.
In July, Japan's exports to China rose 4.2 percent from a year earlier, while shipments to the U.S. jumped 18.8 percent, helped by a 41 percent jump in exports of vehicles and parts.
Imports from the Middle East fell 40.5 percent as the value of imports of oil, gas and other fuels fell by about a third. But economists had forecast an even bigger drop.
Thanks to the shift of manufacturing offshore over the past two decades, the weaker Japanese currency has done little to push exports significantly higher, despite the huge windfalls for Japanese manufacturers when they change dollar-based profits back into yen.
Measured in dollar terms, Japan's exports to China peaked in 2011, fell sharply in 2012 thanks to a flare-up in territorial disputes and have been flat for the past two years. Imports from China have fallen for most of the year.
Japanese companies have rushed to diversify their risks by expanding in Southeast Asia, but that strategy has its limits, given China's growing importance throughout the region.
"Commodity exporters are the worst hit given China's heft in commodities, but there is also little doubt that Asian manufacturing exporters have also fared poorly, even in the face of an entrenched U.S. recovery," the Mizuho report said.
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