Chips are once again the main driver of Japan's export growth. "The driver is artificial intelligence," the Finance Ministry said, as export growth hit 23.2% in July, the fastest pace since October 2022 and a fifth straight month of gains. That easily beat the 19.9% that economists had predicted.
Semiconductor equipment was the standout category, with export value jumping 49.1% from a year earlier. Companies around the world are scrambling to build out AI data centers, and Japan makes the machines that make the chips. Japan's biggest customer, China, is buying a lot. Shipments to China rose 25.8% in July, and that market alone accounts for a big chunk of Japan's export economy.
But here is a catch. Volume growth was just 5.2%. Most of the value gain came from a weaker yen and higher selling prices, not from shipping more stuff.
So while the headline number looks strong, the underlying picture is a bit more mixed. The weaker yen brings both advantages and drawbacks. It makes Japanese goods cheaper abroad, which boosts the value of exports when converted back to yen. But it also makes imports more expensive, and Japan feels that pain at the pump.
Japan's trade data are being watched closely because the country has few other engines of growth. While exports have now risen for five straight months, domestic consumption has remained sluggish, and the second-quarter GDP report showed the economy missing on quarterly and annualized measures. That leaves trade as the main bright spot, but also exposes Japan to swings in global demand, currency moves, and energy prices. That makes the monthly trade numbers especially important for Japan's economic outlook.
July imports surged 27.8%, the most since November 2022 and above the 26.5% forecast. A major factor was petroleum imports, which jumped 87.8% in value, driven by higher oil prices linked to the Iran war.
Japan relies on imports for over 87% of its energy needs, according to the International Energy Agency. So what does this mean for your money?
The Nikkei 225 ticked up 0.64% after the data came out, and the yen barely budged at 158.35 to the dollar, down 0.11%. Investors appeared unfazed by the data. The currency's level remains a key swing factor for both exporters and households.
For investors, the big takeaway is that Japan's economy is still growing thanks to exports, even as other parts of the economy struggle. Second-quarter GDP expanded 0.7% year-on-year, up from 0.5% in the first quarter, and exports were the largest single contributor to that growth.
This comes even as the economy missed on quarterly and annualized measures, showing how much weight exports carry. But the weaker yen also has a downside. If you own Japanese assets, a weaker yen can boost returns when you convert back to your home currency. If you are a tourist planning a trip to Japan, your money will go further than it did a year ago.
The trade-off is that Japan's reliance on imported energy means higher oil prices hit it harder than most. Oil prices and the yen are the two variables worth watching, because they have as much to do with Japan's trade story as the chips themselves.