Japanese export values rose 10.3 percent for the eighth straight year-over-year increase in July, led by solid demand for semiconductors, automobiles and semiconductor-making equipment from the US and Asia, accelerating from a 5.4 percent gain in June and overcoming continued sluggish shipments of those goods to Europe. The pace of export growth came in slower than the consensus forecast of a 12.9 percent gain but the July amount worth ¥9.62 trillion was the second largest after the record high of ¥9.64 trillion hit in December 2023 and the biggest for the month of July.

Import values surged 16.6 percent, close to the consensus call of 16.9 percent, for the fourth straight increase, led by drugs, computers and crude oil, following a 3.2 percent rise in June, as the relatively weak yen is keeping import costs high.

The trade balance recorded a ¥621.8 billion deficit, much wider that the median forecast of a ¥326.5 billion deficit and beyond the economist forecasts that ranged from ¥567.1 billion to ¥179.5 billion shortfalls. It followed a revised ¥223.99 billion surplus in June and a ¥1,223.0 billion (¥1.22 trillion) deficit in May, and compared with a ¥36.5 billion surplus in June 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) hit in January 2023.

Shipments to China, a key export market for Japanese goods, posted their eighth straight increase thanks to demand for semiconductor-making equipment and autos; note the Japanese government has expressed concerns over the slow progress in China's recovery from its property market problems. Japanese exports to the European Union fell on year for the fourth straight month, hit by lingering sluggish demand for automobiles and production machinery, although shipments of iron and steel rebounded. Exports to the US remain robust, up for the 34th straight month on autos and auto parts, after hitting a record high amount in December 2023.

Econoday's Relative Performance Index (RPI) stands at plus 10, modestly above zero, which indicates the Japanese economy is performing slightly better than expected after outperforming with a wider margin recently. Excluding the impact of inflation, the RPI is at plus 12.

Data released last week showed that Japan's gross domestic product for the April-June quarter posted a stronger-than-expected rebound after suffering its first contraction in two quarters in January-March, up a preliminary 0.8 percent on quarter, or an annualized 3.1 percent, as consumption and business investment picked up after having been hit by suspended output at Toyota group factories over a safety test scandal. But the wobbly economic recovery does not warrant a fast pace of policy normalization by the Bank of Japan whose policy rate is still close to zero and keeping monetary conditions accommodative.

Japanese export values are forecast to jump 12.9 percent for an eighth straight year-over-year increase in July, led by demand for vehicles, semiconductors and chip-making equipment, accelerating from a 5.4 percent gain in June, due largely to the base effect of a 0.3 percent drop in July 2023 versus a 1.5 percent rise in June 2023. Import values are also expected to surge 16.9 percent for a fourth straight rise, led by crude oil, drugs and computers, after a 3.2 percent rise in June, as the relatively weak yen is keeping import costs high.

The trade balance is forecast to show a ¥326.5 billion deficit. It would be the first deficit in two months after a surprise ¥223.99 billion surplus in June and compared with a ¥36.5 billion surplus in June 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.