Japanese export values rose 2.8% on year in December (close to consensus +3.0%) to a record high ¥9.91 trillion, posting their third straight year-on-year rise and leading to an unexpected trade surplus. The increase was led by solid demand for semiconductor-producing equipment, computer chips and food, which offset lower shipments of automobiles, ships and construction/mining equipment. Export volumes were down 2.6% for the first drop in two months amid struggling economic recovery in China and parts of Europe.

Import values marked their ninth straight increase, up 1.8% (well below consensus +4.4%), as demand for computers, non-ferrous metals and non-ferrous metal ore made up for lower purchases of crude oil, semiconductors and smartphones. Import volumes rebounded 1.9%.

The trade balance recorded a surplus of ¥130.94 billion for the first positive figure in six months, coming in firmer than the median forecast of a ¥50.0 billion deficit. It followed a revised ¥110.32 billion deficit in November and a ¥323.54 billion deficit in December 2023 and the record shortfall of ¥3,506.43 billion (¥3.51 trillion) in January 2023.

Exports to the United States, which is still the largest market for Japanese exports, dipped 2.1% on year after an 8.0% fall, marking their fifth straight decline on lower demand for automobiles, construction/mining machinery and drugs but the export amount at ¥2.04 trillion is still the second largest on record. Shipments to the U.S. recorded their first year-on-year decline in 35 months in August 2024 (-0.7%) in payback for a high pace of recovery in 2023.

Exports to the European Union edged up 0.5% for the first rise in nine months after a 12.5% fall propped up by demand for motorcycles, electric measuring instruments and raw materials, which offset declines in shipments of autos, auto parts and iron/steel.

Shipments to China, a key export market for Japanese goods, marked the first drop in three months, down 3.0%, after a 4.1% gain in the prior month, led by declines in semiconductor-producing equipment, autos and raw materials.

Japanese export values are forecast to post a third straight year-on-year rise in December, up 3.0%, led by solid demand for semiconductors, food and plastics. Shipments of automobiles are expected to show declines amid global uncertainties.

Import values are expected to mark their ninth straight increase, up 4.4%, reflecting demand for non-ferrous metal ore, computers and non-ferrous metals. Purchases of semiconductors, semiconductors and smartphones are seen down on year.

The trade balance is forecast to post a deficit of ¥50.0 billion for a sixth consecutive shortfall, narrowing from a revised ¥110.32 billion deficit in November and the ¥323.54 billion deficit in December 2023 and the 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.