Japan's trade deficit hits ¥1.1tn as Brent tops $100

Japan's oil import bill rose about 59% in August while volumes grew just 3.6%, a price effect that pushed the merchandise trade deficit to ¥1.1 trillion and kept the economy in the red for a fourth consecutive month.

"High crude oil prices are driving up import costs, leading to a widening trade deficit," Atsushi Takeda, chief economist at Itochu Research Institute, said. "With crude oil prices now exceeding $100 per barrel, I believe this will continue to increase the trade deficit going forward, making it increasingly difficult to return to a surplus."

The Finance Ministry reported Wednesday that exports rose 19.3% from a year earlier to ¥10.05 trillion, a record for the month and the 12th straight increase, though slower than July's 23.2% pace and above the 18.4% median estimate in a Bloomberg survey. Imports climbed 28% to ¥11.15 trillion, also a monthly record, against a 26.3% consensus. The unadjusted shortfall widened from a revised ¥638.3 billion in July and was 275.9% larger than the ¥294.1 billion deficit recorded in August 2025.

The arithmetic is almost entirely energy. Mineral fuel imports reached ¥2.46 trillion, up 38.4%, with petroleum alone at ¥1.19 trillion, up 58.7%, and liquefied natural gas at ¥588.2 billion, up 29.7%. Brent crude averaged about $88 a barrel during August, but rose above $100 last week as attacks in the Strait of Hormuz intensified and the US and Iran positioned for a prolonged conflict. The yen averaged 160.64 per dollar in August, 8.7% weaker than a year earlier, compounding the dollar-denominated cost of every barrel.

That combination has left Japan's terms of trade exposed in a way the export engine cannot fully cover. Exports to the US rose 24.9% to ¥1.72 trillion, but imports from the US surged 55.2% to ¥1.65 trillion, shrinking the monthly US surplus to ¥70.4 billion — a 77.6% collapse from a year earlier and a ninth straight month of contraction. The bilateral surplus that has long anchored Japan's trade position is being consumed by the very crude purchases Japan is making to replace Middle Eastern supply.

The US crude pivot is working, and it is expensive

Japan's crude imports from the US jumped 1,026.6% by value to ¥400 billion in August, while LNG purchases from the US rose 206.5%. Imports from the Middle East grew only 3.7% by value as volumes from the region fell about 31%. The shift reflects shipping disruptions from the war rather than a change in commercial preference, and it carries a cost: longer voyages and a different crude slate mean the same barrel arrives at a higher landed price.

Interior Secretary Doug Burgum pushed back this week against speculation that Washington might restrict fuel exports before the midterm elections to hold down domestic prices. "We would consider an export ban if we thought that it might actually lower prices, but that's not the case," he said. For Japanese refiners, the statement removes one near-term risk to a supply chain that has already been rebuilt around American barrels.

Semiconductors are the offset. Electronic component exports rose 52.3% to ¥894.1 billion, semiconductor manufacturing equipment gained 40.1%, and automobile shipments rose 16.5%, slower than in prior months. Shipments of chip components to China more than doubled, while chipmaking equipment exports to the US and the EU each grew more than 100%. Exports to China rose 20.6% to ¥1.81 trillion and to the EU 11% to ¥866.3 billion, though Japan still ran a ¥551.6 billion deficit with China — its 65th consecutive monthly shortfall.

The yen has since turned. It has strengthened more than 3% against the dollar in September, the best performance among Asian currencies in the period, and traded near 155.18 in Tokyo on Wednesday, still far below the 126.55 10-year average. A stronger yen cuts the local-currency cost of imported crude, but it also erodes the price advantage that has driven 12 months of export gains. The last time the yen appreciated more than 3% in a single month, in late 2024, export growth slowed the following quarter as overseas buyers absorbed the currency shift.

The Bank of Japan concludes a two-day policy meeting on Sept. 18, with markets widely expecting a 25-basis-point increase that would take the policy rate to 1.25%. Rising import costs, wage growth and firm exports have reinforced expectations for further tightening, and a faster pace of hikes would support the yen while adding to the financing costs of the capital spending that underpins the chip export boom.

Takeda expects the export side to hold. "I believe demand for AI-related products will remain strong, so I expect exports to be supported by that," he said. Revised data last week showed the economy grew more strongly in the April-June quarter than first estimated, with business spending beating earlier reports.

The near-term path runs through the oil price. Every $10 sustained on Brent adds roughly ¥300 billion to Japan's monthly energy import bill at current volumes, which means a fourth monthly deficit is unlikely to be the last if the Hormuz disruption persists. A durable return to surplus now requires two things at once: Brent retreating below $90 and the AI capital expenditure cycle continuing to pull Japanese chip equipment and components into US and Chinese data centers.

This article is for informational purposes only and does not constitute investment advice.