Japanese export values posted a modest rise on the year in June as recovering supply chains supported automobile shipments to the U.S. and Europe but volumes continued to shrink on sluggish global demand for semiconductors and iron and steel, data released Thursday by the Ministry of Finance showed.

Import values fell on the year for the third month in a row after recording their first drop in 27 months in April amid easing energy and commodities prices following last year's spike.

A double-digit percentage drop in imports led to Japan's first trade surplus in 23 months in June, compared to large deficits seen in the previous month and a year earlier. The trade balance hit a record shortfall in January this year, 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 seventh straight year-over-year decline in June, led by declines in iron and steel, semiconductors and other electronic parts as well as non-ferrous metals, as largely seen in the previous month. The world's second-largest economy is struggling to recover from the downtime during Beijing's strict zero-Covid policy, which was lifted in December.

The Econoday Consensus Divergence Index stood at minus 24, below zero, which indicates the Japanese economy is performing worse than expected after outperforming several weeks ago. Excluding the impact of inflation, the index was also at minus 24.

Export values rose 1.5 percent on the year in June for the 28th straight increase after edging up 0.6 percent in May and 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 slightly weaker than the median forecast of a 2.0 percent rise (forecasts ranged from 0.8 percent to 4.0 percent gains).

Amid slowing global economic growth, export volumes fell 4.8 percent on the year for the ninth straight drop after falling 6.4 percent in May.

The increase in June export values was led by higher shipments of automobiles, construction and mining machines and ships. Exports of mineral fuels, iron and steel and semiconductor-producing equipment declined.

Import values slumped 12.9 percent on the year in June after falling a revised 9.8 percent in May and marking their first drop in 27 months with a 2.3 percent drop in April. It was larger than the median forecast of a 11.3 percent decline (forecasts ranged from 15.0 percent to 6.9 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 6.1 percent on year in June for the eighth straight decrease after sliding 5.2 percent in May.

The trade balance came to a surplus of ¥43.0 billion in June, marking the first surplus in 23 months. It was firmer than the consensus forecast of a ¥47.1 billion deficit (forecasts ranged from a deficit of ¥376.2 billion to a surplus of ¥209.5 billion). The surplus followed a revised ¥1,381.9 billion deficit (¥1.382 trillion) in May and a record high deficit of ¥3,506.4 billion hit in January. It compared with a deficit of ¥1,375.0 billion (¥1.380 trillion) in June 2022.

Japanese exports are expected to post a 28th straight year-over-year increase in June, up 2.0 percent versus a 0.6 percent rise in May, backed by solid demand for motor vehicles and construction machinery and despite overall slowing of global growth. Imports are seen marking a third straight year-over-year drop, down 11.3 percent after a 9.8 percent fall, reflecting the base-year effect of last year's spike in energy prices. Japan is forecast to record a 23rd consecutive month of a trade deficit, worth ¥47.1 billion in June, would be sharply narrower than a revised shortfall of ¥1,381.9 billion (¥1.382 trillion) in May and a ¥1,375.0 billion (¥1.380 trillion) deficit in June 2022. Some forecasters expect a small trade surplus.

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.