Japan’s Trade Deficit Nearly Doubles From a Year Ago as Energy Bills Swallow Strong Exports
Japan's September trade deficit swelled to 536.6 billion yen, nearly double the shortfall of the same month a year earlier. In trade statistics released Wednesday by the Ministry of Finance, exports rose 16.7% but imports climbed 18.9%, widening the deficit.
The deficit was nearly three times the market forecast of 181 billion yen. The trade balance has now run a deficit for five straight months since slipping into the red in May. Converted into dollars, the deficit came to about $3.39 billion.
Exports rose for a 13th straight month
Exports totaled 10.9723 trillion yen, increasing for a 13th consecutive month. The global artificial intelligence investment boom pulled up Japan's semiconductors and semiconductor manufacturing equipment. Semiconductor exports rose 49.4% from a year earlier, and exports of chipmaking equipment rose 43.9%.
By destination, exports to South Korea rose 35.5% as investment in facilities by Korean chipmakers underpinned demand for Japanese equipment, and exports to Taiwan increased 37.8%, Reuters reported. Exports to the United States rose 22.9%, and exports to China rose 8.6%.
The pace, however, is slowing. Export growth eased from 19.3% in August and fell short of the market forecast of 20.1%. Automobile exports rose 15.1% in value terms but fell 0.5% in unit terms. That means the effect of companies passing higher costs into their prices is inflating the value figures.
The problem is imports, and energy above all
Imports came to 11.5088 trillion yen. Imports of mineral fuels rose 39.4% from a year earlier. Crude oil import volumes rose only 3.1%, but the value jumped 51.1%, and the value of liquefied natural gas imports rose 39.2% even as volumes fell 7.3%.
This is a deficit created not because Japan bought more, but because it paid more for the same amount. Japan relies on imports for virtually all of its fossil fuels. When international oil prices rise, the bill for fuel used in power generation, transport and heating grows in direct proportion. Add a weak yen in the 158-per-dollar range, and the energy bill, which is settled in dollars, grows once more when expressed in yen.
Middle East tensions are shaking this structure. Brent crude, the international oil benchmark, is trading around $110 a barrel. At the Bab el-Mandeb Strait, at the entrance to the Red Sea, Yemen's Houthi rebels have declared a maritime blockade aimed at Saudi Arabia, forcing tankers to change routes and delaying arrivals in Japan.
September's deficit therefore also contains a temporary distortion. Delayed crude oil arrivals pulled import growth down to 18.9% from 28% in August, and the deficit narrowed from about 1.1 trillion yen in August. The government expects October crude procurement to recover to the level of the same month last year as tankers arriving via the Suez Canal come in. Once fuel bills start being charged normally, the deficit is likely to widen again.
Pressure spreading to households and the central bank
Energy import costs reach households through electricity bills and gasoline prices. As prices rise, the Bank of Japan's decisions grow harder as well. The bank will release new growth and price forecasts at its monetary policy meeting later this month, and markets are reading the latest data as a clue to the timing of a rate increase. After the figures were released, the yen weakened slightly in the 158-per-dollar range.
The stock market saw the strength of exports first. The Nikkei 225 closed up about 0.9% at 64,621. Chip-related stocks such as Advantest, a maker of semiconductor testing equipment, and memory maker Kioxia led a rebound from a one-month low. Investors, however, also watched the day's gains shrink amid the mix of export strength, energy costs and the possibility of a rate increase.
The trade deficit also shows where Asia's supply chains now stand. Japanese equipment goes into South Korea and Taiwan, which make artificial intelligence semiconductors, and the finished chips go out to the world, a division of labor printed directly into the export numbers. Conversely, the fact that price swings in a single item, energy, can shake the trade balance of the world's fourth-largest economy this much is the longstanding vulnerability of an economy that leans on imported fuel.
