Japan's merchandise trade balance shifted from a revised deficit of ¥638.6 billion in May to a surplus of ¥153.1billion in June, smaller than the consensus forecast for a surplus of ¥328.45 billion. Exports fell 0.5 percent on the year in June after dropping 1.7 percent in May, close to the consensus forecast for a decline of 0.3 percent. Year-on-year growth in imports rebounded from a decline of 7.7 percent to a small increase of 0.2 percent, stronger than the consensus forecast for a 1.5 percent fall.

Japanese exports to the United States were again weak in June, falling 11.4 percent on the year after dropping 11.0 percent in May. The Trump Administration announced a 24 percent tariff on Japanese imports in early April but then lowered that rate to 10 percent for 90 days pending trade negotiations. That rate is currently scheduled to increase to 25 percent next month if an agreement is not reached.

Japanese exports to China also fell on the year in June, down 4.7 percent on the year after a previous decline of 8.8 percent. This was offset by strong increases in exports to other regional trading partners and a solid increase in exports to the European Union.

Key forecast points:
--Japanese export values -0.3% on year in June vs. -1.7% in May (the first drop in eight months but volumes were up for a second month in a row), possibly led by autos, iron and steel and auto parts in the face of 25% Trump tariffs. Japanese carmakers are reducing the prices for U.S. customers to cover higher import costs, leading to lower overall export prices.
--Import values -1.5% for a third straight drop vs. -7.7% in May (volumes were up for a third straight month) amid easing energy costs.
--The trade balance: a ¥328.45 billion trade surplus, the black ink in three months vs. a revised ¥638.56 billion deficit in May and a ¥221.35 billion surplus in June 2024.

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.