Japanese export figures for September registered their sharpest decline since the aftermath of the March 2011 tsunami, with overseas shipments falling 10.3 per cent on last year’s output, official data showed.
The figures reveal a yawning trade deficit of ¥559bn (£4.4bn) for September – Japan's highest since 1979 – as rising energy imports, a strong yen, and sagging demand in the US and eurozone weighed heavily on the world’s third largest economy.
The fallout from Japan’s ongoing territorial spat with China over the disputed Senkaku/Diaoyu islands also contributed to the slump, highlighting the standoff’s increasing economic dimension.
After Tokyo’s attempt to purchase three of the five islands in August, a wave of anti-Japanese protests erupted throughout China, leading to mass boycotts of Japanese products and attacks on Japanese factories. In turn, numerous Japanese manufacturers have closed plants and investment in their Chinese subsidiaries has waned.
As a result, shipments to China plunged by 14 per cent compared to last year’s data; a significant drop given that Chinese markets account for roughly 20 percent of Japan’s total exports.
Japanese car exports dropped by 45 per cent, with Toyota posting the largest drop of 49 per cent on year. Industrial machinery and electronics shipments also registered double-digit falls.
As protests continue, the prospect of continued boycotts and plant closures looks set to cripple October figures as well.
“The attitude of Chinese consumers is something that politics cannot control. That is where we see the risk of prolongation”, said Kyohei Morita, chief Japan economist at Barclays.
The drop in two-way trade between Japan and China comes amid broader downturns in the Japanese economy. A strong yen – rendering exports uncompetitive – has been coupled with a rise in fuel imports, as Japan looks to offset the widespread nuclear plant closure that followed the Fukushima disaster.
Additionally, sagging demand for Japanese products in developed economies due to the eurozone crisis and a sluggish US recovery have also contributed to the trade deficit.
The data paints a bleak picture of the Japanese economy, with weak forecasts raising the spectre of recession.
Last week, Prime Minister Yoshihiko Noda reportedly instructed his cabinet to prepare a fresh stimulus package by next month, but the news has failed to impress markets.