Japan's July trade deficit unexpectedly widens as exports slow

Japan has reported a larger-than-expected trade deficit in July, after exports slowed down.

Figures released by the finance ministry showed shipments grew 7.6% from the same month a year ago, beating expectations for a 5.2% gain, but lower than the 9.5% increase posted in June.

Imports on the other hand decreased by 3.2%, resulting in a trade deficit of ¥268.1bn (£1.4bn; €2bn; $2.2bn) - the largest since February and well shy of forecasts for a ¥53bn shortfall.

In June, the country recorded a trade deficit of ¥70.5bn.

The news comes amid growing concerns over the outlook of the Japanese economy, which shrank 0.4% in the April to June period on the back of tepid household spending and sluggish exports.

China's recent devaluation of the yuan has also raised fears of a fresh currency war in the region.

A weaker currency makes Chinese goods cheaper in overseas markets, giving the country's exporters an advantage over other competitors.

Analysts said the Japanese government could unveil additional fiscal stimulus measures if weak exports persist.

"Exports to Asia look a little sluggish. There is still (time) for exports to recover, but as of now they look a little weak," Mizuho Research Institute senior economist Hidenobu Tokuda told Reuters.

"I don't think we need stimulus for now, but this could become more likely heading into next year."

Exports to Asia were up 6.1%, slowing from a 10.1% rise from the previous month, while shipments to the US jumped 18.8%.

Abenomics misfiring?

The underwhelming data suggests Prime Minister Shinzo Abe's much-vaunted "Abenomics" growth policy, involving a massive stimulus programme to reverse years of deflation and tepid growth, is yet to gather steam.

"There's no sign of a pickup in exports," Atsushi Takeda of Itochu told Bloomberg.

"The economy may rebound in July-September as consumption and capital spending may recover, but the recovery may lack strength because exports are looking sluggish."