Japan bought more than it sold in May, and the yen is a big part of the reason. The Finance Ministry reported on Wednesday a trade deficit of ¥378.6 billion ($2.36 billion) on an unadjusted basis, the first shortfall in four months. Analysts had expected something larger, at ¥547.6 billion.
The yen averaged 158.29 to the dollar in May, 10 percent weaker than a year earlier. That inflated the bill for imports. Their value rose 12.5 percent from a year ago even though the volume fell by nearly 7 percent. Exports gained 17 percent in value and grew at their fastest pace since late 2022.
Chips in, chips out
Demand for technology tied to artificial intelligence kept the export side strong. Shipments of chips climbed 61.2 percent, with a surge in those bound for China. Autos were up nearly 19 percent, and non-ferrous metals also rose from a lower base. On the import side, semiconductor and electronics shipments jumped 55 percent in value and communication devices 48 percent.
Energy told a different story. Oil imports plunged in both volume and price, a sign of the trouble the war in Iran has caused a country that normally leans on the Middle East for most of its energy. The United States appears to be filling part of the gap: imports of US petroleum products rose more than 660 percent, and crude imports surged as well. Japan’s trade ministry has said it expects a stable oil supply through March 2028. The US and Iran have also reached an interim agreement to reopen the Strait of Hormuz, which President Donald Trump said would reopen on June 19 once signed.
A weaker yen raises the cost of imported materials, including energy, and squeezes the margins of suppliers while giving exporters an edge abroad. Prime Minister Sanae Takaichi created an extra budget to ease the strain on households by subsidising utility bills.
What economists expect
Takeshi Minami, chief economist at Norinchukin Research Institute, does not see the deficit closing soon. “Setting aside the portion where values are inflated by the weak yen, it is difficult to imagine that exports from Japan will grow significantly while countries across Asia are calling for austerity measures,” he said. “Therefore, I expect the trade deficit to continue.”
Economists largely expect growth to slow in the second quarter because of the Iran war, and the deficit suggests trade may add to the drag. That leaves the Bank of Japan in a tight spot. On Tuesday it raised its benchmark rate to the highest since 1995 and promised more increases, feeding speculation of another move before the year ends.
Japan’s surplus with the United States narrowed for a sixth straight month as companies adjusted to the tariffs the Trump administration imposed. Under last year’s deal, levies on Japanese goods, autos included, were set at 15 percent. Trade Minister Ryosei Akazawa said he had confirmed with US Commerce Secretary Howard Lutnick that no tariffs beyond that deal will be added.
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- Japan’s trade balance flips to deficit as Yen inflates imports
