Japan's current account surplus shrank at a faster than expected pace in July, hit by weak exports and falling returns from overseas investments, official data showed on Tuesday.
The surplus in the current account -- the broadest measure of trade with the rest of the world -- fell 19.4 per centin July from a year earlier to 1.266 trillion yen (13.5 billion dollars), the finance ministry said.
The decline followed the first year-on-year rise in the surplus in 16 months in June as the world's number two economy slowly emerges from its worst recession in decades, helped by stimulus spending by world governments.
The July surplus in the income account fell 24.2 per centto 1.25 trillion yen, reflecting lower returns on overseas investments held by Japanese companies and individuals, partly because of super-low global interest rates.
The services account deficit also widened due to lower patent payments from overseas, offsetting the positive impact of a 42.3 per centincrease in the trade surplus from a year earlier to 437.3 billion yen.
Exports dropped 37.6 per centfrom a year earlier to 4.55 trillion yen, but were outpaced by imports, which tumbled 41.2 per centto 4.11 trillion, mainly because of lower energy import costs.
"The trade account surplus is expected to remain on an improving trend," JP Morgan economist Miwako Nakamura said in a report.
But the income account surplus "will probably stay relatively low on the back of low interest rates and weak corporate profit margins in the world."
One risk factor for exports is the strength of the yen, which is making Japanese goods less competitive on global markets, analysts said.
There are also worries that a budding recovery in major overseas economies could lose steam later in the year as the effects of pump-priming measures by world governments fade.
"We believe economic data for July-September will still show the positive effects of stimulus measures," said Hideki Matsumura, senior economist at the Japan Research Institute.
"The concern is about the October-December data, which are likely to reflect economic fundamentals," he said. Historically, Japan has run a large surplus in its current account, which measures the flow of goods, services and investment income.
But its heavy dependence on foreign demand to drive its economy left it highly vulnerable to the global economic slowdown, which crushed demand for its key exports such as cars, high-tech goods and machinery.
Japan's economy returned to positive growth in the April-June quarter after a year-long recession as exports and factory output rebounded.