Japan recorded a trade deficit of 2.81 trillion yen ($17.8 billion) in the first half of its fiscal year, from April to September, as imports rose 20.4% to a record 66.3 trillion yen, according to Finance Ministry data reported by the Associated Press on 21 October. Exports also reached a record, 63.5 trillion yen, up 18.4%. In September alone Japan ran a deficit of 536.6 billion yen, its fifth in a row, down from 1.1 trillion yen in August; those two months together account for about 1.64 trillion of the 2.81 trillion yen half-year deficit. The question is whether this is a temporary shock from the oil price or a lasting strain on the economy.
The case that the damage is manageable starts with exports and the narrowing deficit. Both exports and imports reached record highs in the half-year, and the Finance Ministry’s figures show that Japan is still selling more abroad than a year ago. Exports grew 18.4% over the six months and 16.7% in September, and the monthly deficit fell from 1.1 trillion yen in August to 536.6 billion yen in September, roughly halving. The Bank of Japan raised its benchmark rate from 1.0% to 1.25% last month, a 31-year high, against an inflation target of about 2%. Prime Minister Sanae Takaichi’s government has proposed cutting the food tax from 8% to 1%, a bill that is being debated in parliament. Exports of 63.5 trillion yen against imports of 66.3 trillion yen leave a gap of about 2.8 trillion yen, which is small relative to the size of the flows.
The case that the strain is serious starts with oil and the currency. Imports rose faster than exports, up 20.4% against 18.4% over the six months, and in September imports were up 18.9% against 16.7% for exports. The AP notes that Brent crude rose from $70 a barrel in February to around $110, and that “resource-poor Japan imports virtually all its oil and has relied on access to the Strait of Hormuz in the Middle East.” Five straight monthly deficits show that the pressure is persistent, and the dollar rose to 157.28 yen on Monday from 156.99, a weaker yen that makes imported fuel more expensive. Brent settled at $116.72 on Friday, its highest since June 2022.
The trade figures matter for households and for the central bank. Higher import costs feed into prices at the same time as the Bank of Japan is raising rates, so policymakers face a trade-off between supporting growth and controlling inflation. Brent at $116.72 is about two-thirds above its February level of $70, and Japan’s Nikkei 225 fell 0.8% on Monday, so five straight deficits, from May to September, mean the next monthly trade figures will show whether the September improvement lasts.
Japan’s exporters are doing well, but its energy bill is growing faster: imports rose 20.4% against 18.4% for exports, and the Finance Ministry’s September figures showed the same gap. The balance between the two will decide whether the deficit narrows further.
