Japan's exports fell at the fastest pace in five months in the year to October and the worse than expected result signaled more weakness ahead as a strong yen and sputtering global growth weigh on the recuperating economy.

Although Japan's economy expanded 1.5 percent in the previous quarter, rebounding from recession triggered by March earthquake and subsequent nuclear crisis, it is expected to slow sharply in October-December. Severe floods in Thailand, a major manufacturing base for many Japanese exporters, are expected to add to global headwinds faced by the world's third-biggest economy.

Exports fell 3.7 percent last month from a year earlier, far more than a 0.3 percent dip forecast by economists and the data follows the central bank's warning that government debt woes in Europe were already hurting Japan and emerging economies.

The October fall follows a 2.3 percent rise in September and was the biggest drop since a 10.3 percent fall in May, with shipments of semiconductors and other electronic goods falling due to strength in the yen.

The global slowdown stemming from Europe's debt crisis, sluggish IT-related demand and the yen's rise which is driving production abroad were among the factors behind the decline, a finance ministry official said.

He added that the impact of Thai flooding may further hurt Japan's exports in the coming months.

Thai-bound exports fell 5.1 percent, the first annual decline in three months.

The Bank of Japan held fire last week after easing policy by boosting its asset buying scheme in October, but economists say signs of more weakness may put it under pressure to loosen monetary reins further.

Exports will likely continue to fall for the next few months, said Takeshi Minami, chief economist at Norinchukin Research Institute.

There is a chance that the BOJ will adopt further easing steps within this fiscal year. It is not yet a real crisis situation but the impact from Europe's debt woes is gradually affecting other economic regions.

One of the triggers of the October 27 monetary easing was the yen's rally to record highs against the dollar driven by investors shifting funds away from Europe and other riskier markets into highly liquid and relatively stable Japanese debt.

Some BOJ board members have argued that purchases of government bonds with short maturities worked to stabilize the foreign exchange market, BOJ minutes showed on Monday.

Just days after the central bank move, the finance ministry ordered its biggest ever single-day intervention, selling an estimated 7.7 trillion yen on October 31.

IMPORTS SURGE

Exports to China, Japan's largest trading partner, slumped an annual 7.7 percent, posting their biggest decline since May.

Shipments to the United States fell 2.3 percent, while those to European Union dropped 2.9 percent, down for the first time in five months and bringing Japan's trade surplus with the region to its smallest since 1979 for the month of October.

Imports were up 17.9 percent in October from a year earlier, against an expected 15.2 percent gain, bringing the trade balance to a deficit of 273.8 billion yen ($3.6 billion). That marked the first deficit in two months and compared with a median forecast of a 39.9 billion yen surplus.

Japan's trade balance has swung to a deficit a few times since the March disaster as exports slumped due to damaged supply chains while imports continued to increase on rising demand for crude oil and natural gas to make up for a loss of nuclear energy as well as higher oil prices.

(Additional reporting by Rie Ishiguro; Editing by Joseph Radford and Tomasz Janowski)

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