Japan's July Trade Deficit Widens as Energy Costs and Weak Yen Bite

Japan's trade balance slipped deeper into the red in July, with the deficit reaching ¥634.5 billion ($4 billion) — the third consecutive month of shortfall, according to preliminary data from the Finance Ministry released Thursday.

Imports jumped 27.8% year-on-year to a seasonally adjusted ¥12.15 trillion ($77 billion), while exports rose 23.2% to ¥11.51 trillion ($73 billion). Both figures set records since comparable data began in 1979, the ministry said.

The surge in imports was largely driven by soaring crude oil prices, a consequence of the ongoing war in Iran. Japan, which imports nearly all its oil, has historically relied on shipments through the Strait of Hormuz — a route that remains effectively closed. The country is now seeking alternative energy sources, including from the United States.

Exports were buoyed by strong auto shipments to the U.S. and other markets, as well as healthy demand for semiconductors and other electronic devices. Export growth has now continued for nearly a year.

The yen's weakness has been a double-edged sword. While it boosts the overseas earnings of major exporters like Toyota, it also raises the cost of imported raw materials, food, and fuel. The dollar was trading around 158 yen recently, down from over 160 yen in July but still well above the 140 yen level a year ago.

Japan's central bank has intervened to support the currency, but with limited lasting effect. Analysts attribute the yen's decline to deeper structural issues, including Japan's diminishing economic influence.

Prime Minister Sanae Takaichi's policies have so far had minimal impact on turning the economy around, analysts say. However, with no election on the horizon and her popularity relatively high, she is expected to remain in power for the next several months.