Japan's trade balance in May shows 3rd-largest deficit ever

Japan's trade balance in May showed the third-largest deficit ever for any month, with the red-ink streak extending to the longest 11th month as the depreciation of the yen continued to push up import prices despite a sharp gain in exports, the government said Wednesday.

The 993.9 billion yen deficit in the goods trade balance was the biggest for the month of May since comparable data became available in fiscal 1979, the Finance Ministry said in a preliminary report.

The value of imports rose 10.0 percent year on year to 6,761.6 billion yen in May, up for the seventh straight month, as crude oil imports climbed 6.4 percent and liquefied natural gas went up 8.2 percent.

With the yen weakening steeply, exports, a key engine of Japan's economic growth, jumped 10.1 percent to 5,767.6 billion yen, up for the third month in a row, but still failed to outweigh imports, the report showed.

The ministry said the yen dropped against the U.S. dollar by 23.4 percent from a year earlier in May.

Japan's exports could gain steam, but the country's trade balance is unlikely to turn positive soon as demand for gas and oil will stay robust from utilities boosting fossil fuel-based power generation as an alternative to nuclear power following the 2011 Fukushima disaster, analysts said.

The planned sales tax hikes in two stages to 10 percent from the current 5 percent by 2015 could also ignite domestic demand later this fiscal year, which would drive up imports further, they added.

Japan's trade deficit "is likely to persist until the middle of fiscal 2014" through March 2015, said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Minami added that exports could gain momentum from the latter half of fiscal 2013, but there are fears that the pace of their growth might be slower than expected, given that some emerging economies continue to languish.

Other analysts said the yen has begun to strengthen again amid the market turmoil since late last month, possibly hampering an upturn in Japan's exports.

A sliding yen usually supports exports by making Japanese products cheaper abroad and increases the value of overseas revenue in yen terms, but it increases import prices. Japan depends on imports for more than 90 percent of its energy consumption.

In mid-May, the dollar briefly topped 103 yen for the first time in more than four and a half years as the Bank of Japan's "quantitative and qualitative monetary easing" introduced in April devalued the yen.

The U.S. currency, however, hovered around the upper 95 yen range early Wednesday in Tokyo.

In May, shipments to China, Japan's biggest trade partner, gained for the second consecutive month, up 8.3 percent to 1,046.5 billion yen, with the apparent calming of a bilateral territorial row over a group of uninhabited islands in the East China Sea.

Japan's imports from China were up 14.6 percent to 1,456.4 billion yen, the largest ever.

Exports to the 27-member European Union fell for the 20th straight month, down 4.9 percent to 529.1 billion yen, while imports from the region rose 8.7 percent to 617.8 billion yen.

Japan's shipments to the United States, whose economy has been recovering, soared 16.3 percent to 1,041.3 billion yen, up for the fifth month in a row, while imports climbed 10.2 percent to 614.1 billion yen, the ministry said.

The figures were measured on a customs-cleared basis.