Japan trade surplus drops 58%

By CNN's Alex Frew McMillan in Hong Kong

TOKYO, Japan (CNN) -- Japan's trade surplus slumped 58 percent in July last year. That shows how one of Japan's mainstays, exports, continues to collapse.

July's figure marks the 13th straight month of decline. Though not matching May's 87 percent drop, it's still a sharp descent.

The surplus stood at $3.5 billion (420.7 billion yen), the Ministry of Finance said on Thursday. It measures the balance of trade between what Japan ships out in goods and services and what it ships in.

Local media are reporting more bad news, that Japan's unemployment will hit a record 5.0 percent when it comes out next week. Papers state 3.3 million people are looking for jobs.

Imports also rising

The main reason for the drop was the persistent weakness in exports. They slowed 6.5 percent in July.

Overseas sales of electronics parts were hurt the most, the worldwide slowdown in spending hitting them to the tune of 25 percent.

But another reason for the surplus drop is that Japan has eased restrictions on imports. Freer trade saw imports rise 4.5 percent.

An increase in crude-oil and natural gas shipments into Japan fueled that increase, though Japanese consumers are also switching to cheaper products from elsewhere in Asia.

The main area of growth for imports into Japan, though, was the European Union.

Cheaper goods no good if nobody's buying

Experts say Japan needs a rebound in the prospects of its manufacturers -- and sales abroad -- to help it get back on its feet.

A weaker yen this year should help Japan's manufacturers sell more of their products, by making their goods cheaper overseas. But that doesn't matter if customers don't want - or have the confidence -- to buy, economists note.

The yen has also recently strengthened against the dollar, and is trading at 120.487 to the greenback on Thursday.

Japan's trade surplus with the United States, its largest trading partner, dropped 0.5 percent to $5.1 billion (618 billion yen).

On Wednesday, fresh figures showed that Japan's economy -- as measured by its "all-industries" index -- fell 1.9 percent in the second quarter.

Though Japan narrowly averted a recession on a technicality last week, it is still in a profound slump. Its second-quarter growth figures are likely to be dire when they come out on Sept. 7.

The drop in the surplus for July shows that slumping trade will likely hurt Japan's growth figures for the third quarter, too.

Ryo Hino, an economist with J.P. Morgan, said the drag should start moderating toward the end of the year.

Japan's stock market was slumping Thursday, with the Nikkei down 1.4 percent at 11,239.84 at the noon break. A tech slide was pushing it down double that in afternoon trade.