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By Tetsushi Kajimoto and Leika Kihara
TOKYO, Nov 20 (Reuters) - Japan's exports logged their biggest annual decline in seven years in October, pushing the trade balance into deficit and reinforcing worries the global financial crisis may push the economy deeper into recession.
Exports to Asia fell for the first time since 2002 with sales to China also falling, a sign that fallout from the credit crisis has spread across Japan's key export destinations.
"The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"Japan could continue to log a trade deficit for the rest of this year."
The Bank of Japan begins on Thursday a two-day meeting at which it is expected to keep interest rates on hold, but debate will likely focus on the widening damage from the financial turmoil, which has heightened prospects of another rate cut by the Federal Reserve.
Japan's Nikkei share average fell more than 4 percent on Thursday after U.S. shares plunged to their lowest levels in 5-½ years reflecting the gloomy outlook for the world economy.
Japan, the world's second-largest economy, slipped into its first recession in seven years by shrinking in the third quarter, buffeted by a global financial crisis that has hit Japan's biggest export markets.
The euro zone is also in recession, and the United States is expected to follow in the fourth quarter.
Exports fell 7.7 percent in October from a year earlier, almost matching economists' median forecast for a 8.0 percent drop to record their biggest decline since December 2001, finance ministry data showed. Imports rose 7.4 percent from a year earlier.
That pushed the trade balance to a deficit of 63.9 billion yen ($668.5 million), the second monthly deficit in three months and lagging market expectations for a 80 billion yen surplus.
For a graphic on the trade figures click on https://customers.reuters.com/d/graphics/JP_TRDB1108.gif
Shipments to Asia had previously cushioned the impact from weakening U.S. and European demand on many Japanese companies but October figures showed a 4 percent drop in sales to Asia from a year earlier. Exports to China slipped 0.9 percent, posting the first decline in over three years.
The Bank of Japan may consider more measures to soothe frazzled money markets at its policy meeting this week but is seen keeping rates steady until a shrinking economy or the global financial crisis demand a more drastic response.
A rate decision will be announced on Friday.
The Bank of Japan cut its benchmark interest rate by 20 basis points to 0.3 percent last month, joining global central bank efforts to contain the damage from the crisis. ($1=95.59 Yen) (Editing by Rodney Joyce)