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(CEP News) - Japan's unexpected trade deficit for October, with exports down 7.7% year over year, further confirmed the global meltdown's effect on the world's second largest economy. What is most striking, economists say, is the decline in exports to their Asian trading partners, marking a new phase in Japan's economic downturn.
Japan posted a trade deficit of ¥63.9 billion in October, despite expectations for a ¥73.6 billion surplus. In September, Japan posted a downwardly revised ¥88.5 billion surplus, according to the Ministry of Finance Thursday morning (Wednesday night EST). Matt Robinson, economist with Moody's economy.com, said the fall in exports to the United States and Europe is old news. Declines in shipments to the U.S. have been in negative territory for the last 14 months, and to Europe for the last three, he said. "The key is this is the first time in awhile, perhaps ever, that we've seen exports to Asia, and in particular China, decline," he said. Robinson said Japan's trade balance was being supported by intra-Asian trade up until now, and in particular by demand from Chinese consumers and producers. David Cohen, econmist with Action Economics said the slowdown in China's economy, once one of the few examples of economic strength internationally, is "ominous." He said Beijing is trying to help with the 4 trillion yuan stimulus package introduced recently. "The hope is that will starts to kick in soon enough," he said. Cohen said Japanese exports to Asia fell by 4% year over year, and that up until now they have been firm. "This October, we're first starting to see the extra drag from the additional financial turmoil in the wake of Lehman Brothers collapse in September," he said, "it looks like the data are taking a turn for the worst around the world now." Meanwhile, Cohen said today's release exacerbates expectations that fourth quarter growth will post a steeper contraction than the -0.1% third quarter GDP revealed earlier this week. Later today, the Bank of Japan will start their two-day monetary policy meeting, where they are widely expected to hold rates at 0.30% after cutting 20 basis points only three weeks ago. Robinson said monetary policy is not the answer to Japan's problems. "(It's) so ineffective at the moment, is has been for awhile," he said. Robinson said the answer is fiscal action from the government. "We've got to see a large budget deficit in Japan before any sort of semblance of stability," he said. By Megan Ainscow,
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