Japan's exports climb 16.7% as AI chip demand fuels 13th month of growth; trade deficit narrows

The latest trade data support the yen and the case for Bank of Japan tightening, with exports still expanding at a healthy pace and companies still lifting prices to cover higher costs. The narrower deficit is mainly a product of oil disruption rather than soft demand: tanker rerouting linked to the Houthis delayed crude arrivals, so the import bill is likely to rebound in October as vessels using the Suez route arrive and buying moves back to around year-earlier levels. That makes oil prices and Middle East shipping the key swing factor for Japan's trade balance and for yen pressure stemming from imports over the months ahead. For the BOJ, robust external demand strengthens the case for a December rate rise, and the 30 October meeting with fresh forecasts is the next focus.

Japan's export sector continues to enjoy the AI boom, yet the smaller trade shortfall in September has more to do with oil tankers arriving late than with any genuine turnaround.

Summary:

• September trade balance: a ¥536.6 billion deficit versus a ¥181 billion expected figure and a prior ¥1,111.9 billion shortfall
• Exports (Sep y/y): +16.7%, below the +20.1% consensus and the +19.3% of August
• Imports (Sep y/y): +18.9%, under the +19.6% forecast and lower than the +28.0% seen a month earlier
• Export gains stretched to 13 months, helped by semiconductors and AI-related goods and by cost pass-through at companies
• US-bound exports gained 22.9%, while shipments to China were up 8.6%
• Import growth slowed because rerouted tankers stayed away from the Bab el-Mandeb Strait and crude deliveries were delayed; the government expects crude procurement to return to around year-earlier levels in October

Ministry of Finance data released on Wednesday showed September exports up 16.7% from a year earlier, the 13th consecutive rise, helped by strong demand for semiconductors and AI-related products that offset weak spots elsewhere in trade.

The result missed the 20.1% gain economists had expected and came in below August's 19.3%, but the overall pace remained solid. Global investment in artificial intelligence kept supporting chip and related equipment shipments, while the value of exports was also boosted as businesses pushed price increases through.

Looking at destinations, US-bound exports rose 22.9% year-on-year and China-bound shipments climbed 8.6%.

Import growth was 18.9%, slightly below the 19.6% projection and a clear slowdown from August's 28% surge. Oil accounted for the bulk of that change. Crude arrivals fell as tankers were rerouted away from the Bab el-Mandeb Strait, the Red Sea's southern entrance, after Yemen's Iran-aligned Houthi militia declared a naval blockade against Saudi Arabia, which delayed cargoes heading to Japan.

With a smaller import bill, the trade deficit narrowed to ¥536.6 billion, or about $3.4 billion, from roughly ¥1.1 trillion in August. That remained well above the ¥181 billion gap economists had forecast.

The improvement in imports is likely to prove short-lived. The government expects crude procurement in October to recover to about 100% of the year-earlier level as tankers travelling via the Suez Canal reach Japan, lifting the energy import bill again.

The data point to external demand still underpinning the economy, although the uncertain global outlook continues to weigh on exporters.

Focus now shifts to the Bank of Japan's meeting ending on 30 October, when updated quarterly projections for growth and inflation are due. Markets will examine those figures for signs of when the next rate rise may come, with most economists expecting a move in December.