Japanese export values posted a slight gain as recovering supply chains supported automobile shipments to the US and Europe but the pace of increase continued slowing amid cooling global demand for semiconductors, data released Thursday by the Ministry of Finance showed.

Import values fell on the year for the second month in a row after recording their first drop in 27 months in April in light of easing energy and commodities prices from last year's peaks.

The trade deficit shrank sharply from a year earlier but widened on the month after narrowing for a third straight month in April and hitting a record shortfall in January, a month when trade flows tend to be irregular around the lunar new year holidays in some parts of Asia.

Shipments to China, the key export market for Japanese goods, posted their sixth straight year-over-year decline in May, led by declines in iron and steel, non-ferrous metals and auto parts, as largely seen in the previous month. The world's second-largest economy is only gradually recovering from the sluggish activity caused by Beijing's strict zero-Covid policy.

The Econoday Consensus Divergence Index stood at minus 14, below zero, which indicates the Japanese economy is performing slightly worse than expected after outperforming earlier. Excluding the impact of inflation, the index was at minus 8.

Export values rose 0.6 percent on the year in May for the 27th straight increase after rising 2.6 percent in April, 4.3 percent in March, 6.5 percent in February and following double-digit percentage gains seen last year. It was above the median forecast of a 1.7 percent drop (forecasts ranged from a 4.8 percent drop to a 1.5 percent gain).

Amid slowing global economic growth, export volumes fell 6.4 percent on the year for the eighth straight drop after falling 6.2 percent in April.

The slight increase in May export values was led by higher shipments of automobiles, construction and mining machines and optical instruments. Exports of mineral fuels, semiconductor-producing equipment and electronic parts declined.

Import values slumped 9.9 percent on the year in May after marking their first drop in 27 months with a 2.3 percent drop in April, coming in slightly above median forecast of a 10.1 percent decline (forecasts ranged from 14.0 percent to 7.8 percent falls). The decrease was led by crude oil, coal and liquefied natural gas as the prices for energy and commodities have eased.

Import volumes dipped 5.2 percent on year in May for the seventh straight decrease after sliding 0.4 percent in April.

The trade balance came to a deficit of ¥1.37 trillion (¥1,372.5 billion) in May. It marked the 22nd straight month of a shortfall. It is wider than a revised ¥432.3 billion in April, when the deficit shrank to the smallest in over eight years, narrowing from ¥755.1 billion in March, ¥919.9 billion in February and a record high deficit of ¥3,506.4 billion in January. The May deficit was smaller than a deficit of ¥2.37 trillion (¥2,366.1 billion) seen in May 2022. The gap was slightly narrower than the consensus forecast of a ¥1.40 trillion deficit.

Japanese export values are expected to mark their first year-over-year drop in 27 months in May, down 1.7 percent, as slowing global demand for semiconductors outpaced recovering auto shipments amid improving supply networks. Import values are seen falling 10.1 percent for the second month in a row after recording their first drop in 27 months in April in light of easing energy and commodities prices from last year's peaks.

The trade deficit is forecast to shrink from a year earlier but widen on the month to ¥1.4 trillion after narrowing for a third straight month in April to a revised ¥432.3 billion and hitting a record shortfall in January.

Merchandise Trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

Japan's merchandise trade balance measures visible trade and excludes services. Specifically it is the difference between imports of goods and exports of goods. A positive value indicates a trade surplus (exports exceed imports) while a negative value indicates a trade deficit (imports exceed exports). Movements in the trade balance reflect altered demand for Japanese exports which subsequently impact the yen's value and directly affect GDP growth because of the economy's dependence on trade.

The report gives insight into changing trends regarding Japanese trade. Such developments are especially important for Japan, which is an export-oriented economy that has historically experienced large trade surpluses and any change can have a dramatic effect on the domestic economy. Typically the headline number is the change from the previous year in yen along with the percentage change in exports and in imports from the previous year.