Japan's trade deficit narrowed a less-than-expected 72.3 percent in July from a year ago, as the cost of energy imports kept falling, but the volume of exports stumbled, official data showed Wednesday.
The finance ministry said Japan's monthly deficit came in at 268.05 billion yen ($2.15 billion), well below 966.5 billion yen a year earlier, although economists had predicted the shortfall would shrink to around 53 billion yen.
The lacklustre data come two days after separate figures showed that the world's third-biggest economy contracted last quarter, boosting speculation the central bank will be forced to unleash more stimulus as Tokyo's "Abenomics" growth blitz stumbles.
Imports fell 3.2 percent last month as weak commodity prices helped bring down the country's energy bill, which soared after it had to replace nuclear power with pricey fossil fuels in the aftermath of the Fukushima nuclear crisis.
While the value of Japan's exports rose 7.6 percent, partly driven by rising vehicle shipments, the volume of goods slipped 0.7 percent from the same month last year.
And despite a recovery in the US economy, a slowdown in neighbouring China -- Asia's top economy and a major market for Japanese exporters -- has raised a red flag.
China's central bank devalued the yuan last week, sparking concern the economy is growing more slowly than thought and prompting fears it could start a currency war in which countries compete to boost exports by cutting the value of their units.
Japan's still-struggling trade picture was highlighted in the GDP data this week, as the economy shrank 0.4 percent in the three months to June -- or 1.6 percent on an annualised basis.
The contraction, which was not quite as bad as expected, was blamed on weak consumer spending at home and slowing exports after two consecutive quarters of growth.
The figures come more than two years after Prime Minister Shinzo Abe launched a policy blitz, dubbed Abenomics, to kick-start anaemic growth and conquer years of deflation.
The scheme called for big government spending, massive Bank of Japan (BoJ) monetary easing and reforms to cut red tape in Japan's highly regulated economy -- reforms that have now stalled, however.
Household spending has also been unsteady following a sales tax rise last year, brought in to pay down a massive national debt, which saw consumers rush to stores before prices rose.
BoJ chief Haruhiko Kuroda has pushed back a timeline for hitting a 2.0 percent inflation target, a cornerstone of Abenomics, although he insists healthy price rises are around the corner.
This month, Kuroda said he would consider expanding the bank's record 80 trillion yen annual asset-buying scheme -- a means to pump money into the economy similar to the US Federal Reserve's quantitative easing -- if weak oil prices keep holding back near-zero inflation.