Japanese export values rose 3.1% in October after falling 1.7% in September, which was their first year-on-year drop in 10 months. The headline figure came in largely in line with the consensus call of +3.0% (range: -1.0% to +8.6%). The modest export gain was led by solid demand for semiconductor-producing equipment, drugs and optical equipment, which were partly offset by drops in mineral fuels, auto parts and iron/steel.

Import values marked their seventh straight increase, up a slight 0.4%, following a 1.8% rise the previous month. It was much stronger than the median economist forecast of a 1.8% drop (range: -6.5% to +4.4%). Strong demand for computers, non-ferrous metal and telecommunications equipment (smartphones) was mostly cancelled by lower purchases of crude oil, coal and semiconductors.

The trade data provided a slightly bright spot: a rebound in shipment volumes. It indicates a better net export performance in the October-December GDP data. Export volumes were up 0.1% on year, showing their first rise in nine months while import volumes rose 2.5% for their first gain in three months. In the third quarter GDP data released last week, external demand (exports minus imports) pushed down total domestic output by 0.4 percentage point, marking the third straight quarter of providing a negative contribution. Japan's third quarter economic growth slowed to 0.2% on quarter, on pullbacks in business investment and public works spending, as expected, but an unexpected slip in external demand amid sapping Chinese demand and global uncertainties was offset by surprisingly solid consumer spending on vehicles amid high costs for necessities and stormy Q3 weather.

The trade balance posted a ¥461.2 billion deficit for a fourth consecutive shortfall. It was wider than the consensus call of a ¥132.2 billion red ink (range: a deficit of ¥360.4 billion to a surplus of ¥54.5 billion) and a revised ¥294.1 billion deficit in September, but was still much narrower than the ¥702.86 billion deficit in October 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) in January 2023.

Shipments to China, a key export market for Japanese goods, rose 1.5%, after marking their first fall in 10 months with a 7.3% slump in September. The increase reflects a pickup in demand for semiconductor-producing equipment, computer chips and optical equipment (steppers for chips). However, shipments of automobiles, auto parts and organic compounds (cosmetics) were down as consumption in the world's second largest economy remains sluggish.

Japanese exports to the European Union fell 11.3% for the seventh straight fall amid sluggish demand for automobiles, ships and construction machinery. Exports to the United States slipped 6.2% for their third straight drop in light of resilient but cooling U.S. economic growth. The decrease was due to lower demand for autos, auto parts and construction/mining equipment. Shipments of drugs showed a sharp increase. Exports to the U.S. recorded their first year-on-year decline in 35 months in August.

Japanese export values are forecast to show a rebound in October, up 3.0% (range -1.0% to +8.6%), after falling 1.7% in September for their first year-on-year drop in 10 months. An increase in semiconductor-producing equipment appears to be partly offset by drops in automobiles, mineral fuels and iron/steel. Import values are expected to mark their first decline in seven months, down 1.8% (range -6.5% to +4.4%), on crude oil, semiconductors and smartphones, following a 2.1% rise the previous month.

The trade balance is forecast to post a deficit of ¥132.2 billion (range a deficit of ¥360.4 billion to a surplus of ¥54.5 billion) for a fourth consecutive shortfall a revised ¥294.1 billion in deficit in September and compared with a ¥702.86 billion deficit in October 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) 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.