The ninth consecutive month of export growth reinforces the case for the BoJ to continue its gradual tightening path, with semiconductor and AI-related demand providing a durable demand floor that is proving resistant to geopolitical disruption. The sharper-than-forecast narrowing in the trade deficit, at 378.7 billion yen versus an expected 564.6 billion, will offer modest yen support at the margin, though the currency remained little changed following the release. The 28.5% plunge in crude oil import values reflects the Hormuz disruption rather than demand weakness, and a reopening of the strait under the US-Iran framework could see energy import costs normalise over coming months, which would further compress the deficit. Middle East export exposure remains a drag, with shipments to the region down 32%.
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Japan’s exports rose 17% in May, the fastest pace since late 2022, with semiconductors surging 61.2% on AI demand, while the trade deficit narrowed to 378.7 billion yen against a forecast 564.6 billion. (200 chars)
Summary:
- Exports rose 17% year-on-year in May, beating the Reuters poll forecast of 16.2% and marking the ninth consecutive month of growth, the fastest pace since November 2022
- Semiconductor exports surged 61.2% in value terms, driven by AI and data centre investment, while car exports rose 16.4%
- Shipments to China climbed 17.9% and to the US rose 12.5%; exports to the Middle East fell 32% due to the Iran war
- Imports rose 12.5%, below the 12.8% forecast, with crude oil import values plunging 28.5% as Hormuz closure drove prices higher on reduced volumes
- The trade deficit came in at 378.7 billion yen, well below the forecast deficit of 564.6 billion yen
- The data follows the BoJ’s 25 basis point rate rise to 1.0% on Tuesday, with the Nikkei down 0.5% and the yen little changed at 160.4 per dollar after the release
Japan’s exports extended their winning streak to nine consecutive months in May, rising 17% from a year earlier at the fastest pace since November 2022, as surging demand for semiconductors and AI-related technology more than offset the disruption caused by the US-Iran war in the Middle East.
The result beat a Reuters poll forecast of 16.2% growth and accelerated from the 14.8% recorded in April. Semiconductor exports were the standout, jumping 61.2% in value terms as sustained global investment in artificial intelligence infrastructure and data centres drove demand for chip-making equipment and electronic components. Car exports also contributed, rising 16.4% on the year.
By destination, China remained Japan’s largest trading partner and recorded a 17.9% increase in shipments, while exports to the United States, the second-largest market, rose 12.5%. Exports to the Middle East fell 32% as the conflict disrupted trade routes and reduced activity across the region.
Imports grew 12.5%, coming in just below the 12.8% forecast. The headline figure masked a dramatic shift in the energy component: crude oil import values plunged 28.5%, not because Japan reduced its energy dependence but because the closure of the Strait of Hormuz sharply curtailed volumes while simultaneously driving prices higher. Japan has sought to diversify procurement toward non-Middle Eastern suppliers, including the United States, but those efforts have not fully replaced lost supply.
The resulting trade deficit narrowed to 378.7 billion yen, considerably tighter than the forecast 564.6 billion yen shortfall. A potential reopening of Hormuz under the US-Iran framework agreed in principle over the weekend could further ease import costs in coming months.
The data lands a day after the Bank of Japan raised its policy rate by 25 basis points to 1.0%, the highest level in over three decades. A weak yen, currently trading around 160.4 per dollar, continues to flatter export values while adding to imported inflation pressures domestically.
This article was written by Eamonn Sheridan at investinglive.com.
