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Japan trade deficit widens in July, exports up on higher demand for machinery, heavy vehicles

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TOKYO - Japan's trade deficit rose in July from the month before to a wider than expected 964 billion yen ($9.4 billion), though exports were higher for the first time in three months, the government said Wednesday.

It was the 25th straight monthly trade deficit for the world's third-largest economy, due mainly to an increase in imports of oil and gas to compensate for idled nuclear reactors following meltdowns at the Fukushima Dai-Ichi nuclear power plant in 2011.

Exports rose 3.9 per cent from a year earlier to 6.19 trillion yen ($60.2 billion), slightly outpacing a 2.3 per cent increase in imports, to 7.15 trillion yen ($69.5 billion). Japan recorded an 822 billion yen deficit in June.

Japan's demand for imports has moderated in recent months as business slowed following an increase in the national sales tax. But a recovery in overseas demand, especially for machinery, buses and trucks, is a welcome relief. Exports have so far failed to rally as much as expected, despite a weakening in the Japanese yen against the dollar and other currencies over 2012 and 2013.

The economy contracted at a 6.8 per cent annual rate in April-June, a setback largely attributed to the April 1 tax hike and to stepped-up purchases before the increase took effect, but is expected to recover later in the year.

"It will take until early next year before domestic spending returns to the levels reached ahead of the sales tax hike," said Marcel Thieliant, an economist with Capital Economics.

Adjusted for seasonal factors, the trade deficit was 1.02 trillion yen ($9.9 billion), down slightly from 1.08 trillion yen a year earlier.

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