Japan exports hit monthly record driven by AI and chip demand

Japan's economy is experiencing a surge in trade activity driven by high demand for semiconductors and AI-related technologies. In July, exports rose 23.2% year-on-year to a monthly record of 11.5 trillion yen, marking the eleventh consecutive month of growth. This expansion was bolstered by strong shipments of electronic components, semiconductor manufacturing equipment, and automobiles.

However, the export boom has been accompanied by a widening trade deficit, which reached 634.5 billion yen in July. This deficit is largely attributed to a 27.8% increase in imports, driven by high energy costs and rising crude oil prices following geopolitical tensions in the Middle East. The weak yen has also contributed to higher import values and increased competitiveness for Japanese goods abroad.

Manufacturing and service sectors showed signs of strengthening in August. The S&P Global Flash Japan Manufacturing PMI rose to 55.1, with new orders increasing at their fastest pace since early 2018. While manufacturing leads growth, persistent cost pressures from energy and supply chain disruptions remain a concern. These economic indicators, including rising inflation, are fueling market expectations that the Bank of Japan may continue to normalize monetary policy by raising interest rates as early as September.