Japan trade slump sparks global fears

Sales of high-tech products have been hard hit

Japan's trade surplus was 32% lower in October than a year before, with a decrease in both exports and imports.

The continuing trend reflects a drop-off in exports in line with the global downturn.

Junichiro Koizumi's priority remains long term restructuring

With the country heading into a prolonged recession, the government is promising additional measures to try to stimulate demand.

Japan's once-massive trade surplus continues to shrink at a rapid rate.

Sales of high-tech products have been hit hard since the end of last year because of the sharp slowdown in the US, the key market for Japanese goods.

For all that, Japan still ran a substantial surplus for the month of $3.8bn, and the trade balance with the US remained heavily in Japan's favour at $5bn.

"With the slowdown in the US economy in the last few months, it is no surprise that the trade surplus is declining, that is not something that would surprise anyone," Fiachra McCann, head of research at WestLB Securities told the BBC's World Business Report.

"The US economy will recover from second quarter calendar next year. With that we should see a recovery in exports...I don't think there is necessarily a fundamental problem with Japanese competitiveness," he said.

Alarming weakness

The size of the surplus was once a source of bitter controversy with Washington.

Now that it is shrinking, the US is far more concerned about alarming weaknesses in the Japanese economy, and the possible damage it could do to the world's financial system.

Unemployment is at a record high of 5.3%, and manufacturers are continuing to lay off workers.

The recession is forecast to last through next year as well.

Cap on borrowing

Japan's prime minister, Junichiro Koizumi, had been resisting pressures to take additional stimulus measures.

Worried by the size of the national debt, the largest in the developed world, he promised a cap on additional borrowing.

But the administration has now agreed on a second supplementary budget this year in an effort to generate growth.

Mr Koizumi says his priority is still long-term restructuring, but he is hoping to buy some time by alleviating the current economic pain.