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Japan's trade deficit narrows in April as import growth slows following sales tax hike

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TOKYO - Japan's trade deficit narrowed in April after the yen strengthened and a sales tax hike dampened demand for imports of consumer goods.

Costs for imports of oil and gas that account for about a third of the country's imports moderated, reflecting a rise in the yen after a year of decline and decreases in shipments of some fuels.

The 808.9 billion yen ($8 billion) deficit in April, according to preliminary figures released Wednesday by the Ministry of Finance, compared with a gap of 877.4 billion yen a year earlier and with a 1.7 trillion yen deficit in March.

Japan's exports are improving as the economy emerges from a protracted slump and recoveries gain momentum overseas, but Japanese manufacturers have shifted a large share of their production offshore to cut costs, avoid trade barriers and be closer to fast growing emerging markets.

The Bank of Japan wrapped up a two-day meeting Wednesday with no change in its ultra-loose monetary policy and an upbeat assessment of the economy, saying it was "expected to continue a moderate recovery as a trend."

But economists expect more action from the central bank later in the year.

"The chances of additional stimulus being announced as soon as July have shrunk substantially, but we still think that more easing will eventually be required," said Marcel Thieliant, an economist for Capital Economics based in Singapore.

Imports surged in March as consumer and businesses rushed to beat the April 1 hike in the sales tax to 8 per cent from 5 per cent. In April, imports rose 3.4 per cent to 6.88 trillion yen ($68 billion), while exports climbed 5.1 per cent from a year earlier to 6.07 trillion yen ($60 billion), led by shipments of machinery and transport equipment

The deficit could widen again once sales pick up in coming months.

The U.S. was Japan's biggest export market in April, followed by China. But while Japan ran a 547.5 billion yen ($5.4 billion) trade surplus with the U.S., down 2.8 per cent from a year earlier, its deficit with China rose 3.5 per cent to 461.1 billion yen ($4.5 billion).

Exports to China, mostly of machinery, chemicals and vehicles, rose nearly 10 per cent, while imports, mostly of manufactured items, climbed about 8 per cent.

Japan's imports of oil and gas surged as thermal plants increased operations to offset lost generating capacity after nuclear reactors were shut down for safety checks following the March 2011 accident at the Fukushima Dai-Ichi nuclear power plant. That further eroded the trade balance, which could improve if some nuclear plants are allowed to go back online once they meet tightened requirements.

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