Japanese export values rose 7.8 percent on year in February for the third straight increase, led by continued strong demand for automobiles and auto parts from the U.S. and Europe. The pace of increase was faster than the consensus call of a 5.7 percent gain but it slowed from the 11.9 percent rise in January due to the lunar new year holidays in some parts of Asia after rush pre-holiday shipments in January.

Import values posted their first year-over-year increase in 11 months, up just 0.5 percent (consensus was a 4.0 percent rise), after falling a revised 9.8 percent in January. The increase was led by purchases of clothing, computers and refined petroleum products. Imports of coal and liquefied natural gas continued to fall on soft energy prices. Those of semiconductors from China also declined.

The trade balance recorded a ¥379.4 billion deficit after showing a revised ¥1,760.3 billion (¥1.76 trillion) deficit in January and a ¥58.88 billion surplus in December. The deficit was narrower than the median forecast of ¥826.2 billion, a ¥928.9 billion deficit in February 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) hit in January 2023.

Shipments to China, one of the key export markets for Japanese goods, posted their third straight increase after a year-long decline through November amid a gradual recovery in the world's second-largest economy.

Japanese exports to the European Union also posted the third consecutive gain after showing their first year-over-year drop in 33 months in November while exports to the U.S. remained robust, up for the 29th straight month, after rising to a record high in December 2023.

Econoday's Relative Performance Index stood at minus 2, just below zero, which indicates the Japanese economy is performing largely as expected after underperforming recently. Excluding the impact of inflation, the RPI was at minus 23. The fourth quarter GDP data showed that Japan narrowly averted a mild recession in the second half of last year.

Export values are forecast to rise 5.7 percent on year in February after rising 11.9 percent in January and rebounding 9.7 percent to a record high in December. Strong demand for automobiles from the US and Europe is seen offsetting lower shipments of semiconductor-producing equipment. Cargo flows in Asia appeared to have slowed in early February due to the lunar new year holidays after rush pre-holiday shipments in January. Import values are expected to rise 4.0 percent after falling 9.6 percent in January, which would be the first increase in 11 months led by increased purchases of clothing and computers amid a continued fall in energy prices.

The trade balance is forecast to show a ¥826.2 billion deficit after recording a revised ¥1,760.3 billion (¥1.76 trillion) deficit in January and a ¥68.89 billion surplus in December. It would be narrower than a ¥928.9 billion deficit in February 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) hit in January 2023.

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.