Japan's June Trade Deficit Unexpectedly Widens as Yen Falls Below 163

Japan's Ministry of Finance released new data on Wednesday (22nd), showing that the country's trade deficit in June 2024 widened unexpectedly to 406.9 billion yen (approximately 2.5 billion USD), far exceeding analysts' forecast of 1.2 trillion yen. This reflects the heavy burden on import costs caused by the yen falling to multi-decade lows.

In June, total imports rose 25.4% year-on-year, while exports increased by 19.3%. A major factor behind the widening deficit was the surge in energy prices. Ongoing conflict in Iran continues to disrupt supply. Although Japan has been striving to diversify its energy sources—such as increasing oil imports from the U.S. by nearly 900% in value (with volume up 460%)—overall crude oil import volumes have declined, but import values have surged nearly 60% due to higher prices.

Koya Miyamae, Senior Economist at SMBC Nikko Securities, noted that import price increases will temporarily continue to outpace export price gains, making it difficult to ease deficit pressures.

Meanwhile, the yen faces severe challenges. The average USD/JPY exchange rate in June was 159.69, a 10.9% depreciation compared to the same period last year. This week, the yen briefly fell below 163.24, reaching its lowest level since 1986. Despite the Japanese government spending 11.73 trillion yen on currency intervention from late April to the end of May, the yen remains weak due to the U.S.-Japan interest rate differential and geopolitical tensions. Finance Minister Shunichi Suzuki has issued a strong warning, stating authorities are ready to take 'bold measures' against excessive volatility.

Despite rising import costs, Japan's exports remain robust. Fueled by global demand for AI chips, semiconductor and electronic parts exports surged 54%, while automobile and non-ferrous metal exports also saw significant growth. Exports to the U.S. rose 13% on strong auto demand, while exports to China were supported by semiconductor demand.

However, economists warn that trade factors will drag down second-quarter economic growth, with next month's GDP data likely reflecting economic slowdown caused by the conflict and high inflation.