Japan reported a trade deficit of 621 billion yen ($4.3 billion) in July, driven by a significant increase in import prices, according to data released by the Finance Ministry on Wednesday.
The country’s imports surged nearly 17% year-over-year to 10.2 trillion yen ($70.6 billion), while exports rose by 10% to 9.6 trillion yen ($66 billion). The sharp rise in imports, particularly in meat, food products, and iron, reflects a relatively strong domestic economy where consumer spending has picked up amid rising wages.
Despite the growth in exports, Japan’s trade balance remained in deficit. Exports to key markets such as the U.S., China, and Brazil showed growth; however, the auto sector continued to struggle. Production at major automakers, including Toyota Motor Corp., was hampered by a scandal involving falsified testing, further exacerbating delays initially caused by parts shortages during the coronavirus pandemic.
Japan’s exports in July showed growth in categories like plastic, paper products, and computer parts. “Exports slightly missed the market consensus but showed a robust acceleration, suggesting the economy is in recovery,” said Robert Carnell, regional head of Research Asia-Pacific at ING Economics. He added that the broad-based growth across major categories, particularly in technology exports, is a positive sign for Japan’s economic outlook.
The trade deficit marks a reversal from June, when Japan recorded a trade surplus. The nation has consistently posted trade deficits for six consecutive fiscal half-years since the latter half of 2021, with the weak yen contributing to the negative trade balance. Japan’s fiscal year runs from April to March.
The weakening yen, coupled with inflationary pressures and rising global costs, including volatile energy prices, has negatively impacted Japan’s import costs. As a resource-poor nation, Japan relies heavily on energy imports, which have been affected by uncertainty in the Middle East and critical ceasefire talks in Gaza.
Daisuke Karakama, chief market economist at Mizuho Bank, noted that the trade deficit is not only a result of a weakening yen but also reflects new spending trends among Japanese consumers, such as increased spending on overseas digital streaming services. He highlighted in an interview with Japan’s Economist magazine that more dealers are opting to sell yen rather than buy it, further weakening the currency.
Earlier this year, the U.S. dollar reached a high of 160 yen but has since stabilized, trading at around 145 yen on Wednesday. Currency fluctuations have been driven by various factors, including anticipation of future moves by the U.S. Federal Reserve and the Bank of Japan. The Fed is expected to cut interest rates as early as next month, while Japan’s central bank is considering a gradual increase after maintaining extremely low rates for years.
Japan’s economic outlook remains closely tied to these currency movements and ongoing global economic uncertainties, with the trade deficit highlighting the challenges the nation faces in navigating these turbulent times.
