Japanese exports have tumbled at their sharpest pace since the aftermath of last year's earthquake and tsunami. More worryingly, exports to China have fallen to fresh lows amid a worsening territorial spat.
Data released today by Japan's Finance Ministry showed that shipments slid by 10.3 percent in September from a year earlier, leaving a deficit of 558.6 billion yen ($7 billion), its biggest since May last year when the country was rebuilding supply chains wrecked in the March earthquake and tsunami.
While much of the decline has to do with the global economic slowdown and the yen's strength, analysts are nonetheless worried that Tokyo's territorial dispute with China could have exacerbated the trade decline.
In particular, analysts point to the fact that Japanese shipments to China fell by 14.1 percent in September from a year earlier, accelerating from a 9.9 percent decline in August.
The decline comes amid an escalating territorial dispute over the Senkaku or Diaoyu Islands, in Japanese and Mandarin respectively, which are believed to be believed to be rich in oil and gas deposits and are claimed by both Japan and China.
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The spat has led to thousands of cancelled flights between the two countries, violent protests and boycotts of Japanese brands - everything from cameras to cars.
Among the biggest falls was a 44.5 percent decline in exports of Japanese automobiles. Toyota posted the biggest drop as September sales slumped 48.9 percent on year.
Two-way trade between Asia's two largest economies reached $340 billion last year, prompting IMF Managing Director Christine Lagarde to warn earlier this month that the vulnerable global economy could not afford to have the two countries distracted by their dispute and urged the two nations to resolve their differences "harmoniously and expeditiously."
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Ryutaro Kono, chief economist at BNP Paribas, told the Wall Street Journal:
The deteriorating relationships with China could prove to be a major blow to the Japanese economy. If this problem continues into early next year... an economic recession would be unavoidable (in Japan).
China is Japan's largest trading partner and reduced bilateral trade should hurt Japan more than it does China. Beijing buys 20 percent of Japan's total exports while Tokyo purchases less than 10 percent of China's exports.
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