Japanese export values posted their first year-over-year decline in 29 months in July as slower global demand for mineral fuels, semiconductor-producing equipment and electronic parts and devices more than offset the impact of recovering automobile shipments, data released Thursday by the Ministry of Finance showed.

Import values fell on the year for the fourth straight month after recording their first drop in 27 months in April as energy and commodities prices have generally eased from last year's surge.

Japan's trade balance unexpectedly slipped back into deficit after recording its first surplus in 23 months in June and improving from a record shortfall in January this year.

Shipments to China, the key export market for Japanese goods, posted their eighth straight year-over-year decline in July, led by declines in automobiles, semiconductors and other electronic parts as well as iron and steel, as largely seen in recent months. The world's second-largest economy has been struggling to recover from the depth of the pandemic slump, prompting Beijing to take more economic stimulus measures.

The Econoday Consensus Divergence Index stood at plus 6, just above zero, which indicates the Japanese economy is performing slightly better than expected after outperforming with a wider margin earlier. Excluding the impact of inflation, the index was at plus 5.

Export values edged down 0.3 percent on the year in July for the first drop in 29 months after rising 1.5 percent in June, 0.6 percent in May, 2.6 percent in April, 4.3 percent in March, 6.5 percent in February and following double-digit percentage gains seen last year. The decline was smaller than the median forecast of a 1.0 percent drop (forecasts ranged from a 1.7 percent fall to a 0.1 percent rise).

Amid slow global economic growth, export volumes fell 3.2 percent on the year for the 10th straight drop after falling 4.8 percent in June.

The decrease in July export values was led by continued declines in mineral fuels and semiconductor-producing equipment while shipments of electronic parts and devices including chips also dropped. Exports of automobiles continued to post a solid gain from year-earlier levels.

Import values slumped 13.5 percent on the year in July after falling 12.9 percent in June and 9.8 percent in May and marking their first drop in 27 months with a 2.3 percent drop in April. It was smaller than the median forecast of a 15.2 percent decline (forecasts ranged from 16.0 percent to 14.4 percent falls). The decrease was led by coal, crude oil and liquefied natural gas as the prices for energy and commodities have eased.

Import volumes dipped 4.3 percent on year in July for the ninth straight decrease after sliding 6.1 percent in June.

The trade balance came to a deficit of ¥78.7 billion in July after marking the first surplus in 23 months in June. It was weaker than the consensus forecast of a ¥43.7 billion surplus (forecasts ranged from a deficit of ¥80.0 billion to a surplus of ¥162.3 billion). It followed a revised ¥43.1 billion surplus in June and a record high deficit of ¥3.51 trillion hit in January. It compared with a deficit worth ¥1,421.9 billion (¥1.422 trillion) in July 2022.

Japanese export values are forecast to have posted their first year-over-year decline in 29 months in July, down 1.0 percent, amid slowing global demand and despite recovering automobile shipments. Import values are seen falling on the year for the fourth straight month, down 15.2 percent, as energy and commodities prices have generally eased from last year's surge. As a result of a sharp drop in imports, Japan is expected to record a second straight month of a trade surplus, worth ¥43.7 billion in July, after ending 22 months of a deficit in June and recovering from a record shortfall in January this year.

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.