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

In a further sign of trouble for an export-reliant economy facing recession, exports to the United States posted their sharpest fall ever from the same month of a previous year.

'The data really showed that economic conditions both in Japan and overseas are weakening,' said Mr Satoru Ogasawara, macro strategist at Credit Suisse.

'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.'

Exports limped up 0.3 per cent in August from a year earlier, short of a median forecast for a 2.4 per cent rise, Ministry of Finance data showed on Thursday.

That followed a 8 per cent rise in July and a 1.8 per cent drop in June, which was the first year-on-year fall in about five years.

Exports have been losing steam this year as a year-long mortgage crisis has taken its toll on the US market, as well as Europe and Asia, hurting the main driver of the world's second-largest economy.

Imports grew 17.3 per cent, versus an expected rise of 21.1 per cent, as the import value of crude oil hit a record high, bringing Japan's trade balance to a deficit of 324 billion yen (S$4.4 billion), against economists' forecast for a deficit of 400 billion yen.

Japan's trade surplus have been shrinking in recent months due to high oil and other commodity prices, while exports were weakening as a US slowdown spills over to Europe and Asia.

Reflecting sluggish auto exports, shipments to the United States fell a record 21.8 per cent in August, marking the 12th straight month of annual declines, while exports to the European Union slipped 3.5 per cent.

Exports to Asia were up 6.7 per cent, and those to China - now Japan's No.1 export customer - rose 8.8 per cent.

Solid demand for Japanese diesel fuel boosted China-bound exports while imports from China fell due to a decrease in clothing and computer parts.

As a result, Japan logged its first trade surplus with China since July 1993, excluding February and March when Chinese export activity tends to slow due to the Lunar New Year holidays there.

Solid demand from emerging economies including oil-producing nations have so far provided some cushion against blows to exports.

But economists say an easing of oil prices since summer bodes ill for Japanese exports to resource-rich countries.

'Given the recent retreat of oil prices from the peak level, growth in exports to resource-rich nations may also slow down, adding to the downward momentum of overall exports.' said Mr Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.

The Japanese economy shrank in the second quarter this year at its sharpest rate in seven years as crumbling US 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 a 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. A more widely used definition is two quarters of contraction in GDP.

The Japanese central bank maintained its overnight call rate target at 0.50 per cent by a unanimous decision in a policy review last week overshadowed by the upheaval on Wall Street. -- REUTERS