40-Year Low in Yen Drives Export Boom: Japan's July Export Value Far Exceeds Expectations, AI Chip Demand Resists Middle East Conflict Shadow

Zhihu Finance APP noted that driven by strong demand for Japanese chips and cars, as well as the yen falling to a 40-year low, Japan's export growth accelerated to its fastest pace since 2022.

Data released by Japan's Ministry of Finance on Thursday showed that in July, exports rose by 23.2% year-on-year, further accelerating from June’s increase of 19.3%. This result surpassed economists’ median forecast for a 20.1% gain, setting the fastest pace since October 2022.

Imports grew by 27.8%, faster than June’s 25.4% increase and higher than economists’ forecast of 25.1%. On an unadjusted basis, the trade deficit widened for a third consecutive month, expanding from the revised 409.9 billion yen in June to 634.5 billion yen.

Japan's Export Growth Hits Fastest Pace Since 2022

The data indicates that so far, Japanese manufacturing has largely managed to handle the impact of the Middle Eastern conflict. In the three months ending June, this is an encouraging signal for Japan’s economy, as sluggish domestic demand led to lower-than-expected economic growth.

Nomura Securities economist Yuki Ito noted, “Amid the recent AI boom, exports of semiconductor manufacturing equipment and semiconductor components are increasing.” He added that exports of chemical products also rose, saying, “I suspect this may be partly due to an easing of naphtha supply constraints, leading to a rebound in exports that had previously been declining.”

A weaker yen boosted shipment values and, by enhancing the competitiveness of Japanese goods in overseas markets, has become one of the factors supporting corporate growth. The currency hit its lowest level against the US dollar in 40 years in July. The Ministry of Finance reported that the average yen-dollar exchange rate was 161.83, a depreciation of 11.2% year-on-year.

Strong global demand for AI chips is a key driver behind this growth. Exports of electronic components, including semiconductors, surged by about 49%. Other areas of growth included passenger car exports, which grew by 21%.

By export destination, shipments to the United States increased by 22%, while those to China and Europe grew by 25.8% and 19.1%, respectively.

Meanwhile, energy procurement patterns in Japan continue to change as the Iran war has effectively shut down the Strait of Hormuz.

Trade reports show the total value of oil imports soared nearly 88%, with import volumes growing by 5.5%. In terms of import share, the proportion of imports from the US rose to 36% of the total in July from 7% in February, while the share from the Middle East dropped to 59%.

The 60-day negotiation window set under the US-Iran memorandum of understanding expired on Monday without a permanent peace agreement, and uncertainty around the conflict remains. The interim agreement aimed to resolve disputes over the Strait of Hormuz, Iran’s nuclear program, and economic sanctions, but a lasting solution was not achieved.

Economist Yuki Ito commented, “Shipping data shows that Japan appears to be making further progress in securing alternative supplies from the US.”