Japan trade deficit narrows in Oct as exports rise

TOKYO (AP) — The drop in oil prices helped trim Japan's trade deficit in October, as exports of cars, ships and steel picked up pace.

The value of exports was the highest since 2008, while shipments to the U.S., China and other major trading partners hit their highest level in over a year, according to the preliminary data from the Finance Ministry.

Japan's economy slipped into recession in July-September as consumer demand and business investment languished following a sales tax hike in April. A long-awaited recovery in exports could help reverse that trend.

But most of the improvement came from rising export volumes, and potential for further gains remains limited, said Marcel Thieliant of Capital Economics.

"We expect the recovery in domestic demand to remain sluggish, which should keep import volumes subdued. But the export climate index has moderated lately, and no longer points to strong increases in export volumes, either," he wrote in a commentary.

Oil prices have dropped to their lowest level in four years. Benchmark U.S. crude oil was trading at $74.42 early Thursday in electronic trading on the New York Mercantile Exchange, while Brent crude was at $78.17.

The overall trade deficit fell 36 percent from a year earlier to 710 billion yen ($6 billion). It was the 28th straight month of deficit, but much lower than economists had forecasted.

Exports rose 9.6 percent from a year earlier to 6.69 trillion yen ($56.7 billion) while imports rose 2.7 percent to 7.4 trillion yen ($62.7 billion).

Despite the lower costs for imports of oil, a sharp drop in the value of the Japanese yen likely will keep overall import costs high. Resource-scarce Japan is almost completely reliant on imported oil.

The yen was trading at 118 yen to the U.S. dollar Thursday, about 20 percent lower than a year ago.

Japan's trade surplus with the U.S. climbed 6.8 percent to 610 billion yen ($5.2 billion) while its deficit with China jumped 15 percent to 587 billion yen ($5 billion).