TOKYO - Japan's trade deficit hit a record high after its exports to China, the country's biggest trade partner, nosedived last month, due largely to a bitter territorial row between the two countries.
The worse-than-expected fall, accompanied by a rise in imports, saw the deficit jump to 558.6 billion yen (S$8.6billion), the third straight monthly shortfall. Analysts expect exports to fall further.
Many Asian stocks retreated on the back of Japan's weak export figures, as well as disappointing earnings reports from some major American companies.
In Tokyo, however, the fact that Japan posted the biggest deficit of 3.22 trillion yen in the first half of its fiscal year to March 2013, had only a limited impact on stock prices. The Nikkei index ended marginally higher for a sixth straight session yesterday.
Finance Ministry data showed that Japanese exports to China, which began declining in June, dropped 14.1per cent last month. Cars saw the steepest dip of 44.5per cent, while auto parts fell by 17.5per cent.
On the whole, Japanese exports fell 10.3per cent last month, down from 5.8per cent in August.
Market uncertainty fuelled by the euro zone crisis also saw Japanese exports to the European Union contract by 21.2 per cent.
Meanwhile, Japanese imports last month rose 4.1 per cent, after a 5.4 per cent fall in August, as crude oil and liquefied natural
gas imports surged following Japan's abandonment of nuclear power.
Imports from China also rose 3.8 per cent, much of it due to a 157.5 per cent jump in communications equipment fuelled by the popularity of smartphones and other cellphones in Japan.
Last month, anti-Japanese protests triggered by a bilateral row over the Senkaku islands - which the Chinese call Diaoyu - forced the closure of Japanese plants and spurred a boycott of Japanese goods, especially cars.
Property developers in China reportedly still refuse to use lifts and air-conditioners made by Japanese companies. Some Chinese state-run enterprises have also barred Japanese firms from taking part in bidding exercises.
The influential Nikkei business daily said a further drop in exports to China could be expected for the last quarter of the year due to the boycott of Japanese products and a slowdown in China.
The latest survey by Quick Corp, Nikkei's financial information unit, found that, for the first time in seven months, there are more Japanese manufacturers who are pessimistic about economic conditions.
But senior economist Hidehiko Mukoyama of the Japan Research Institute sees trade with China recovering by the year end.
Meanwhile, he expects exports to China to remain poor until after the Chinese Communist Party holds its national party congress next month, which will usher in new leadership for the country.
"But Beijing is taking measures to stimulate its economy, and the Chinese economy can be expected to expand again in the last quarter. I therefore believe Japanese exports to China will make a comeback by the end of the year," said Mr Mukoyama, who watches the Chinese economy.
Chinese scholars are less concerned with Japan's trade figures than the impact of an expected decline in Japanese investments in China next year. As Professor Liu Jiangyong, a Japan expert at Tsinghua University, sees it, any slowdown in Japanese investments will "certainly affect China's economy to some extent".