Japan's July trade hits records as chip demand lifts exports, oil costs inflate imports

Japan's trade data for July painted a picture of strong external demand colliding with costly energy imports. Exports climbed 23.2% year-on-year to a record 11.5 trillion yen, beating market forecasts of a 19.9% increase. The surge was driven by robust demand for semiconductors, particularly for AI-related data centres, and a weaker yen that made Japanese goods more competitive overseas.

Imports, meanwhile, rose 27.8% to 12.1 trillion yen — a monthly record for the second consecutive month and above the expected 26.5% gain. The import bill was inflated by high oil prices and a rebound in crude volumes, which rose 5.5% year-on-year for the first increase in four months. The value of crude imports jumped 87.8%, as alternative supplies from the United States replaced Middle Eastern shipments disrupted by conflict.

"The recovery in crude volumes, combined with persistently high oil prices and larger shipments of pricier U.S. crude, has been pushing up the value of imports," said Koki Akimoto, an economist at Daiwa Institute of Research.

The trade deficit for July came in at 634.5 billion yen, narrower than the forecast 680 billion yen. Exports to the United States rose 22% year-on-year, while shipments to China were up 25.8%.

The strong export performance underscores resilient global demand, helping offset weak domestic consumption and business investment. Japan's economy expanded for a third consecutive quarter in April-June, driven largely by overseas shipments.

The persistence of wholesale inflation — producer prices rose 7.2% in July — alongside solid exports supports the case for the Bank of Japan to continue normalising monetary policy, with a rate hike possible as soon as September.