The steep fall came as exports to the ailing US economy declined for a 13th straight month. Exports to the rest of Asia - which until recently had been holding up relatively well - showed only tepid growth.

'Looking at the situation in overseas economies, prospects for Japanese exports to the United States and Europe remain grim,' said Mr Yoshikiyo Shimamine, chief economist at Daiichi Life Research Institute.

Exports to the rest of Asia will also probably start to show year-on-year falls before long, he added.

The September surplus of 95.1 billion yen (S$1.47 billion) was much lower than market expectations for a figure of about 546 billion yen.

It followed a deficit of 324.0 billion yen in August, which was the first in 26 years excluding January when exports are usually slow due to the New Year holiday.

Imports rose 28.8 per cent in September while exports edged up just 1.5 per cent, weighed down by falling shipments to the United States and western Europe, the finance ministry said.

US-bound exports dropped 10.9 per cent, shipments to the European Union fell 9.0 per cent and those to the rest of the Asia nudged up just 2.9 per cent.

Weaker demand for automobiles weighed heavily on exports to the US market, said RBS Securities economist Junko Nishioka.

'A downturn in automobile exports is also the largest source of the export decline for the EU region,' Mr Nishioka said.

Japan has enjoyed brisk exports in recent years, helping Asia's largest economy to recover from recession in the 1990s.

But the Japanese economy shrank in the second quarter of this year and there are increasing fears that it is once again in recession, which is usually defined as two straight quarters of economic contraction.

Worries about the global economic outlook drove Tokyo's Nikkei stock index down more than seven percent to a five-year low at one point on Thursday.

For the six months to September, the first half of the fiscal year, the trade surplus shrank 85.6 percent from a year earlier to 801.97 billion yen, the finance ministry said.

Soaring energy costs continued to pressure the trade balance.

In September imports of crude oil jumped 61.7 per cent by value, while those of coal surged 105.9 per cent.

Despite the worsening economy, analysts said the Bank of Japan seems unlikely to reduce its super-low interest rates of 0.5 per cent any time soon. -- AFP