Japanese exports plumetted in December for the first month in three, causing a larger-than-expected slump in the trade surplus and undermining a recovery from recession.
Exports fell 7.3 percent, seasonally adjusted, from November, and imports rose 1.2 percent. The trade surplus narrowed 37 percent to Japanese Yen 657.3 billion (US$5.6 billion), the Ministry of Finance said. Economists expected a ?782.1 billion surplus.
The yen's almost 5 percent gain against the dollar in the past three months has hurt exporters by making Japanese goods from cameras to computer chips more expensive in foreign markets.
The prospect of a US-led war in Iraq weakened the dollar and prompted consumers and companies to put off purchases of imported goods and equipment.
"With fears over an attack on Iraq, I can hardly foresee an upward trend among exporters," said Kazuaki Otsuka, who helps manage Japanese Yen 4 billion at ING Mutual Funds Management Co.
The world's second-largest economy is "weakening," the government said this month, as Japanese stocks slump and global growth slows.
Industrial Production fell for a third month in November, and machinery orders, an early sign of capital spending, fell for a second month.
"Exports will be relatively flat in coming months," said Masaki Kuwahara, an economist at Nomura Research Institute.
"The weakness in business spending is limiting growth opportunities for manufacturers."
A decline in exports, which account for a tenth of the economy, may sap a recovery from the third recession in a decade.
Economic growth slowed to 0.8 percent in the third quarter from 0.9 percent in the second.
"There's definitely some uncertainty in the direction of the global economy," Casio Computer Co spokesman Kazuhiko Ichinose said. "We're not at the point of downgrading our sales forecasts, but it is worrying."
Casio, the maker of G-Shock watches, relies on overseas markets for about 40 percent of sales.
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