Japan logged a record annual trade deficit in 2012 as exports continued to slide in December in a worrying signal that the effects of a weaker yen and the new government's moves to boost the economy with fiscal and monetary stimulus have been slow in coming.
Sentiment among Japanese manufacturers improved for a second straight month and is seen returning to a positive reading in the coming few months, providing some evidence that the world's third-biggest economy is crawling out of a mild recession.
But the record annual trade gap of 6.93 trillion yen ($78.27 billion) in 2012 and the seventh consecutive monthly drop in exports show that improved sentiment has yet to translate into hard economic data.
Finance ministry data on Thursday showed that exports fell 5.8 percent in the year to December, more than economists' consensus forecast of a 4.2 percent drop.
The second consecutive annual trade deficit recorded by a nation that for decades had racked up hefty surpluses, helping to finance its ballooning debt, underlines the need for Prime Minister Shinzo Abe's government to strike a balance between economic growth and fiscal reform.
The 2011 shortfall was the first annual trade deficit since 1980, as exports struggled and Japan's shift away from nuclear power after the March 2011 earthquake and tsunami, with its subsequent nuclear crisis, boosted fossil fuel imports.
December data, however, are expected to be the low point and analysts expect the economy to gradually regain momentum this year.
"When calculating month-on-month figures, seasonally adjusted export volume actually increased a lot, suggesting that exports and the broader economy bottomed out last November or December," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
The batch of data comes as Abe has rolled out an economic stimulus package and the yen has weakened in expectations of bold monetary easing by the Bank of Japan.
The BOJ doubled its inflation target to 2 percent on Tuesday and made an open-ended commitment to buy assets from next year after weeks of relentless pressure from Abe for a greater push to lift the economy out of deflation.
Imports rose 1.9 percent, against a projected 1.5 percent increase, resulting in a trade deficit of 641.5 billion yen compared with a forecast deficit of 534.0 billion yen, and marking a sixth straight month of trade deficits.
A Reuters monthly poll, also out on Thursday, which closely correlates with the BOJ's tankan survey showed that the manufacturers' sentiment index