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Sharp fall in Japan's current account surplus puts focus back on debt pile

* Aug current account surplus slumps 63.7 pct yr/yr

* Current account decline biggest since Oct 2011

* Income surplus falls for first time in 9 mths

* Japan's status as net creditor nation in doubt

By Stanley White

TOKYO, Oct 8 (Reuters) - Japan's current account surplus

tumbled in August due to declining overseas profits and chronic

trade deficits, raising questions about the nation's ability to

rely on its status as a net creditor to ease the pain of its

massive public debt pile.

The 63.7 percent annual decline in the current account

surplus was the biggest in almost two years and confounded the

median estimate for a 23.4 percent annual increase as the income

surplus, which includes earnings from overseas subsidies, fell

for the first time in nine months.

The income surplus decline could prove temporary as overseas

economies remain stable. Trade deficits will be more persistent,

though, as energy imports soar to make up for closed nuclear

power plants, which will in turn weigh on the current account.

"We have to worry about Japan's debt dynamics in the long

term," said Shuji Tonouchi, senior fixed income strategist at

Mitsubishi UFJ Morgan Stanley Securities.

"Japan was a high surplus country, but things are changing.

Other countries have also transitioned from maintaining a high

surplus via exports only to watch their surplus shrink."

The current account surplus stood at 161.5 billion yen

($1.66 billion), versus the median forecast for a 549.0 billion

yen surplus, finance ministry data showed on Tuesday.

The income surplus fell 10.0 percent in August from a year

ago to 1.3 trillion yen.

Japan's public debt has just topped 1,000 trillion yen, or

about $10 trillion. At more than twice Japan's GDP, it is the

heaviest debt burden among industrialised nations.

Until a few years ago, some economists argued that Japan's

debt burden is not much of a problem because its hefty current

account surplus means it is a net creditor to the world.

However, the trade balance, which was already under pressure

from a shift in production overseas, fell into deficit after the

March 2011 earthquake and nuclear disaster as energy companies

replaced nuclear energy with imported fossil fuels.

Since sweeping to power in December with a mandate to

jump-start the world's third-biggest economy, Prime Minister

Shinzo Abe has launched an aggressive policy mix of government

stimulus and monetary easing dubbed 'Abenomics' that has driven

the yen lower and buoyed the stock market.

Still, while a weakening yen has boosted the competitiveness

of Japanese exporters and increased the value of overseas

revenue in yen terms, it has also pushed up import costs.

In an effort to address the mounting debt problem, Abe this

month agreed to raise the 5 percent sales tax to 8 percent in

April to pay for rising welfare costs.

However, there are worries this will not make a sufficient

dent in the debt burden because the government is also compiling

stimulus spending that will wipe out much of the gain in tax