Media365
Japan’s exports rose for a 10th consecutive month in June, beating market expectations as a weak yen and robust demand linked to artificial intelligence-related data centres helped offset disruptions to trade and shipping caused by the US-Israel war with Iran.
Exports rose 19.3 per cent year-on-year in June, government data showed on Wednesday. The increase was stronger than the median market forecast of 18.6 per cent and followed a 16.8 per cent rise in May.
The latest data highlights the resilience of Japan’s external sector even as geopolitical tensions and disruptions to global supply chains have increased uncertainty for exporters and importers.
Exports to the United States rose 13 per cent from a year earlier in June, while shipments to China increased 17.6 per cent, the data showed.
Strong demand for products linked to the AI boom, including equipment and components used in data centres, helped support Japan’s export performance. The weaker yen also boosted the value of overseas shipments and improved the competitiveness of Japanese goods in international markets.
However, the sharp rise in exports was accompanied by an even larger jump in imports.
Japan’s imports surged 25.4 per cent year-on-year in June, well above market expectations for a 21 per cent increase. The increase was driven in part by higher prices for crude oil and other energy-related products as disruptions to shipping through the Strait of Hormuz pushed up costs.
As a result, Japan recorded a trade deficit of 406.9 billion yen ($2.49 billion) in June. Economists had expected a much smaller deficit of around 120 billion yen.
The higher import bill has added to the challenges facing Japanese policymakers. A weak yen makes imported energy and raw materials more expensive, adding to inflationary pressures even as policymakers remain mindful of the need to support economic growth.
Although high-level US-Iran peace talks began in late June and oil prices subsequently eased, the conflict continued to weigh on global trade and logistics for much of the period covered by the data. Renewed hostilities between Iran and the United States in recent weeks have further increased concerns about energy supplies, shipping routes and inflation across the global economy.
For Japan, the Strait of Hormuz is particularly important because the country relies heavily on imported energy. Any sustained disruption to shipping through the strategic waterway could raise the cost of crude oil and other commodities, putting further pressure on the country’s trade balance and consumer prices.
The latest trade figures will also be closely watched by the Bank of Japan.
The central bank is widely expected to keep interest rates unchanged at its policy meeting next week. However, it is likely to maintain a tightening bias as a weak yen and higher energy prices intensify inflationary pressures.
The Bank of Japan faces a delicate balancing act. Raising interest rates could help support the yen and contain imported inflation, but tighter monetary policy could also weigh on economic activity. Keeping rates low, meanwhile, could provide support to growth but leave the currency vulnerable to further weakness.
The strong export performance provides some support to Japan’s economy, but the surge in imports and the widening trade deficit underscore the risks posed by higher energy costs and geopolitical disruptions.
Japan’s trade data also comes at a time when global policymakers are closely monitoring the impact of the Iran conflict on shipping, oil prices and inflation. Any further escalation could put additional pressure on economies dependent on energy imports and complicate central banks’ efforts to manage the competing demands of growth and price stability.
With inputs from agencies.
