UPDATE 2-Japan exports to Asia fall as global slowdown bites

(For more stories on the financial crisis click [ID:nCRISIS])
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By Tetsushi Kajimoto and Leika Kihara

TOKYO, Nov 20 (Reuters) - Japan's exports to the rest of Asia
logged their first annual decline in nearly seven years in
October as sales to China fell, in a sign the global economic
slump has spread to the world's fastest-growing regions.

Economists warned the worst was yet to come, as overall
exports logged their biggest fall since 2001 -- the last time
Japan suffered a recession.

"The real impact of the financial market turbulence since
September on the trade data will show up in coming months," said
Takeshi Minami, chief economist at Norinchukin Research
Institute. "Japan could continue to log a trade deficit for the
rest of this year."

Exports to other Asian countries slid because they too are
suffering as recession spreads through the West, economists said.

The Bank of Japan begins on Thursday a two-day meeting at
which it is expected to keep interest rates on hold, but debate
is expected to focus on the widening damage from the global
financial crisis that has heightened the prospects of another
rate cut by the Federal Reserve. [ID:nT126402]

Japan, the world's second-largest economy, slipped into its
first recession in seven years in the third quarter. The euro
zone is also in recession, and the United States is expected to
follow in the fourth quarter. [ID:nLE536930]

Japan's Nikkei share average .N225 dropped 4.3 percent to a
three-week low, battered by earnings fears as the crisis sends
the yen up <JPY=> and sinks U.S. shares to 5-½ year lows. [.T]

Big exporters have been a key driver of growth since Japan
emerged from recession in 2002 after the dot.com bust, with China
recently passing the United States as its biggest customer.

October figures showed overall Japanese exports fell 7.7
percent from a year earlier and a 7.4 percent rise in imports
produced Japan's second monthly trade deficit in three months.

Shipments to Asia had previously cushioned the impact from
weakening U.S. and European demand due to the financial crisis.
But they fell 4 percent in October from a year earlier -- their
first decline since 2002.

Exports to China, Japan's biggest trade partner, slipped 0.9
percent to post the first decline in more than three years.

That pushed the trade balance to a deficit of 63.9 billion
yen ($668.5 million), the second monthly deficit in three months
and lagging market expectations for a 80 billion yen surplus.

For a graphic on the trade figures click here

"We thought slowing imports would lead to a slight surplus in
the trade balance but exports fell more than expected," said
Junko Nishioka, chief Japan economist at RBS. "It's a very
negative sign for Japan's output and its economy."

The Bank of Japan may consider more measures to soothe
frazzled money markets at its policy meeting this week but is
seen keeping rates steady until a shrinking economy or the global
financial crisis demand a more drastic response. A rate decision
will be announced on Friday.

The Bank of Japan cut its benchmark interest rate by 20 basis
points to 0.3 percent last month, joining global central bank
efforts to contain the damage from the crisis.
(Editing by Rodney Joyce)
($1=95.59 Yen)