Japan’s July trade deficit narrows as record exports offset soaring import costs
Record semiconductor demand and a weaker yen drove Japanese exports to an all-time high, while elevated oil prices pushed imports to a fresh record, resulting in a trade deficit smaller than economists had predicted.
Japan’s trade deficit for July came in at 634.5 billion yen, a figure that proved smaller than the 680 billion yen forecast by market analysts. The outcome was driven by a surge in export values, which hit a record high of 11.5 trillion yen, partially offsetting a sharp rise in import costs.
Exports rose 23.2 per cent year-on-year, significantly exceeding the median market forecast for a 19.9 per cent increase. This growth followed a 19.3 per cent rise in June and was attributed to robust global demand for semiconductors, particularly for AI-related data centres. A sharper decline in the yen also contributed to the performance by making Japanese goods more price-competitive for overseas buyers.
Conversely, total imports by value grew 27.8 per cent from a year earlier to 12.1 trillion yen, marking a fresh monthly record for the second consecutive month. This figure also surpassed market forecasts for a 26.5 per cent increase. The primary driver was the cost of energy, with the total value of crude oil imports jumping 87.8 per cent.
Crude oil import volumes rose 5.5 per cent from a year before, the first increase in four months. This rebound reflects a shift in supply chains, where alternative supplies, mainly from the United States, have replaced Middle Eastern shipments that were disrupted by conflict and shipping issues through the Strait of Hormuz earlier in the year.
Koki Akimoto, an economist at Daiwa Institute of Research, noted that the recovery in crude volumes, combined with persistently high oil prices and larger shipments of pricier US crude, has been pushing up the value of imports. Although oil prices retreated in June after shipping routes were partially restored, the impact on import values typically appears with a lag because customs-based prices reflect contracts agreed weeks earlier.
The data reinforces the case for the Bank of Japan to continue normalising monetary policy. With producer prices rising 7.2 per cent in July from a year earlier, the persistence of wholesale inflation alongside resilient exports supports the expectation of a rate rise as soon as September.
The trade figures follow separate data released this week showing that Japan’s economy expanded for a third consecutive quarter in the April–June period. Strong exports have helped offset weak private consumption and business investment, underscoring an economy that remains increasingly reliant on overseas shipments.
