Japan's export growth maintained a double-digit pace in August, with shipments to the US and China outpacing the overall rate, but a surge in import costs driven by high oil prices and a weak yen pushed the trade deficit to 1.1 trillion yen, marking the fourth consecutive month in the red.

The strong momentum in semiconductor exports is now being offset by the price shock from energy imports, according to data released by the Ministry of Finance on Wednesday.

Exports rose 19.3% year-on-year in August, marking the 12th straight month of growth, though the pace slowed from July's 23.2% gain and came in slightly above the median economist forecast of 18.4%. Imports jumped 28% year-on-year, far exceeding export growth, which widened the unadjusted trade deficit from a revised 6383 billion yen in July to 1.1 trillion yen.

Exports of electronic components, including semiconductors, surged 52% year-on-year, serving as the core growth engine, while shipments to the US climbed 24.9%, those to China rose 20.6%, and exports to Europe increased 11%. However, these robust gains were insufficient to counterbalance rising energy import costs — oil imports in value terms jumped roughly 59% in August, while import volumes edged up just 3.6%, with price factors accounting for nearly all of the increase.

Atsushi Takeda, chief economist at the Itochu Research Institute, pointed out that high oil prices are inflating import costs and widening the trade deficit, and with crude prices breaking above $100 per barrel, the deficit is likely to keep expanding, making a return to surplus increasingly difficult.

Semiconductor exports surge 52%, US shipments lead

Electronic components, led by semiconductors, were the core driver of August export growth. Electronic component exports rose 52% year-on-year, with semiconductor shipments to China more than doubling, and semiconductor manufacturing equipment exports to the US and EU also growing by over 100%. While automobile exports continued to rise, the pace of growth slowed compared with previous months.

By destination, exports to the US grew 24.9%, to China 20.6%, and to Europe 11%, with demand across major markets remaining solid.

Oil prices above $100, deficit widens for a fourth straight month

The direct catalyst for the August trade deficit expansion was energy imports. Oil import values rose about 59% for the month, while volumes inched up only 3.6%. Brent crude averaged around $88 per barrel in August, still at a relatively high level; entering September, however, amid escalating attacks in the Strait of Hormuz and sustained US-Iran tensions, Brent has already broken above $100 per barrel.

Japan is accelerating the diversification of its crude procurement sources. In August, the value of Japanese oil imports from the US jumped more than 1000% to 400 billion yen, while crude imports from the Middle East rose just 3.7% in value, with volumes declining roughly 31%. US Interior Secretary Doug Burgum said earlier this week that an export ban would only be considered if it were believed to genuinely lower domestic gasoline prices, which is not the case.

Yen shifts from weakness to strength, import costs square off against export competitiveness

Ministry of Finance data shows the yen averaged 160.64 against the dollar in August, down 8.7% from a year earlier. A weaker yen raises the cost of imported raw materials in yen terms on one hand, while providing exporters with overseas pricing competitiveness on the other.

But the yen's trajectory has turned since September: the currency has appreciated more than 3% against the dollar this month, making it the best-performing Asian currency over the period. In early Tokyo trading on Wednesday, the yen was trading near 155.18 per dollar, still well below its 10-year average of 126.55.

Takeda believes demand for AI-related products is expected to remain robust, which should provide support for exports.

Looking ahead, the key focus will be on whether oil prices can sustain above $100, and whether yen appreciation can ease the pressure of import costs denominated in yen.