Japan's trade surplus has taken a sharp dive, signalling that the vital export sector of one of the world's leading economies is in deep trouble.

Data released by the finance ministry on Thursday showed the surplus shrinking by about 94 per cent in September to $965.7m, far worse than the $16.34bn surplus it posted in the same month last year.

The plunge is the result of falling overseas demand for its products amid the skyrocketing cost of importing energy and raw materials.

The news comes as European and Asian leaders gather for the Asia-Europe Meeting in China, to discuss measures to counter the global economic crisis.

Japan's benchmark Nikkei index plunged more than eight per cent on Thursday before regaining some ground by the midday break.

Sluggish outlook

The September trade figures which underlined views that sluggish exports are pushing Japan's economy into recession still represented a turnaround from August when Japan logged the first in-effect deficit in nearly 26 years.

The resource-poor country spent slightly less on energy imports in September than it did in August, reflecting recent declines in crude oil prices.

The world's No 2 economy is saddled with high costs for oil, coal and natural gas, pushing up imports by 28.8 per cent amid a steady decline in overseas demand for Japanese goods.

Total exports rose slightly by 1.5 per cent as shipments of cars and consumer goods to North America and Europe fell, reflecting the spreading fallout of the global financial crisis.

For the April-September period, Japan's trade surplus shrank 85.6 per cent to $8.14bn.