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Japan Swings to Trade Deficit For First Time in Four Months in May

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Japan Swings to Trade Deficit For First Time in Four Months in May

Japan reverted to a trade deficit in May for the first time in four months, driven by strong domestic demand for advanced technology that caused imports to outpace the nation's strong export growth.

Trade deficit stood at 378.7 billion yen in May, versus a revised trade surplus of 299.3 billion yen in April, according to preliminary data released by Japan Customs on Wednesday.

The deficit, however, was lower than the consensus deficit forecast of 564.6 billion yen tracked by Investing.com, and compared with the deficit of 662.5 billion yen in May 2025.

Exports rose 17% year over year to 9.512 trillion yen, sharper than the 14.8% rise the previous month. It beat the Investing.com consensus estimate of a 16.2% increase.

Imports rose 12.5% year over year to 9.890 trillion yen, accelerating from the 9.8% rise the previous month, and marginally missing the Trading Economics consensus estimate of 12.8%.

Norinchukin Research Institute's chief economist, Takeshi Minami, said Japan's trade deficit is expected to continue, while a weak yen impacted values and exports may unlikely "grow significantly while countries across Asia are calling for austerity measures," Bloomberg reported.

Semiconductors remain one of the biggest drivers for both exports and imports, with chip exports logging a year-over-year jump of 61.2% and chip imports posting a 55% rise.

The boost in global chip demand helped drive better sentiment among manufacturers, with orders for semiconductors remaining strong despite wider geopolitical tensions, according to the latest Reuters Tankan survey on Wednesday.

However, imports of petroleum slumped 28.5% year on year, reflecting the lingering bottleneck from the closure of the Strait of Hormuz due to the Middle East conflict.

The growth of oil prices may slow down significantly in the coming months, as the U.S. and Iran are close to signing a 14-point interim memorandum of understanding in Switzerland that aims to end the hostilities and completely reopen the strait.

Regionally, Japan's trade balance with China increased 3.9%, but the trade balance with the U.S. shrank 19.9%, indicating the ongoing effect of the previous year's 15% U.S. tariffs on select Japanese goods.

While a newly proposed U.S. plan threatened an additional 12.5% global tariff across multiple regions, Trade Minister Ryosei Akazawa told reporters in a June 5 press conference that he held high-level meetings with U.S. Commerce Secretary Howard Lutnick. Akazawa confirmed that Washington would respect prior bilateral boundaries, ensuring that no additional tariffs will be imposed on Japan beyond the baseline set in 2025.

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