Tokyo: Japan’s shaky economy was dealt another blow on Wednesday, as official data showed a widening September trade deficit that puts the world’s number-three economy on track to log a record annual shortfall.

The worse-than-expected deficit of 958.3 billion yen (Dh32.9 billion, $8.96 billion) adds to a string of weak figures and follows a sharp economic contraction in the second quarter after an April sales tax rise slammed the brakes on growth — fuelling fears of a recession.

The latest numbers translated into a trade deficit of 10.47 trillion yen for the first nine months of the year, a 35 per cent leap from a year ago.

Earlier this month, the International Monetary Fund nearly halved its 2014 growth projections for Japan — to 0.9 per cent from 1.6 per cent — underscoring the damage that the tax increase inflicted on the economy.

And on Tuesday the Japanese government downgraded its outlook for the economy for the second month in a row, raising more questions about whether Tokyo will raise the levy again next year to 10 per cent from 8 per cent.

“The government and Bank of Japan [BoJ] have assumed that the domestic economy may be weak due to the consumption tax rise, but that it would be offset by foreign demand,” said Takeshi Minami, an economist at Norinchukin Research Institute.

“That scenario may be collapsing. China is slowing down and there are risks of Europe entering recession.”

However, improving shipments to Asia — which rose 8.1 per cent in September — could help smooth out Japan’s trade picture, according to SMBC Nikko Securities.

“Asian production has been slack since 2011 and was part of the reason that Japanese exports stalled,” it said in a research report.

“But it is increasing gradually now and may lead to a recovery in Japanese exports.”

The gloomy figures will heap more pressure on the government of Prime Minister Shinzo Abe and his economic growth plan dubbed “Abenomics”.

The plan stalled when Tokyo raised the sales tax on April 1 — for the first time in 17 years — to help pay down one of the world’s biggest public debt burdens.

Abe’s economic plan helped sharply weaken the yen as the central bank launched massive monetary easing stimulus.

But the currency’s drop has not translated into a strong pick-up in exports as Japanese companies shift production to lower-cost venues abroad.

Japan’s September trade deficit of 958.3 billion yen was a record for the month, up from 943.2 billion yen a year earlier, and was much worse than a market median forecast of a 768-billion-yen deficit.

Exports

The shortfall was up 1.6 per cent year-on-year.

The finance ministry said exports rose 6.9 per cent to 6.38 trillion yen helped by higher shipments of cars, steel and ships.

Shipments to China rose 8.8 per cent, while exports to North America rose 4.7 per cent and were nearly flat to the European Union, inching up 0.7 per cent.

Imports climbed 6.2 per cent to 7.34 trillion yen, boosted largely by purchases of liquefied natural gas and telecommunications equipment, which was partly tied to the launch of the newest iPhone in Japan last month.

Natural gas buying has remained high as Japan tried to plug a yawning energy gap after the 2011 Fukushima crisis forced the shutdown of nuclear reactors, which once supplied more than one-quarter of the nation’s power.

Japan’s economy contracted 1.8 per cent on-quarter in the three months to June — or 7.1 per cent on an annualised basis — its steepest quarterly drop since the quake-tsunami disaster, raising concerns about another downturn in the July-September period.