Japan exports soar 23% as China shipments surge and AI demand fuels growth

Japan’s exports climbed 23.2% in July compared with the same month last year, with stronger semiconductor equipment sales and much heavier trade with China doing most of the lifting.

That was the quickest annual export gain since October 2022. It also meant export growth sped up for a fifth straight month. Economists had been looking for a smaller 19.9% rise. Chipmaking equipment was a major reason the total came in so high.

Japan shipped 49.1% more semiconductor machinery by value than a year earlier as companies continued pouring money into hardware for artificial intelligence.

China was also buying much more from Japan in July compared to last year. Imports from Japan into China grew by 25.8% whereas exports to America were up 22%. China remains Japan’s top trading partner.

Still, the growth in income derived from exports was significantly higher than growth in volume of shipments. The volume of exports grew by only 5.2%. Price increases and weak currency helped increase the export value.

A weak currency also makes it easier for Japanese producers to offer lower prices to their clients in foreign countries. However, there is a trade-off. The country now requires more of its national currency to buy imports.

AI demand lifts Japan’s chip exports while the weak yen makes imported goods more expensive

Markets responded once the July trade numbers came out during the session. The Nikkei 225 rose 0.64%, while the yen slipped 0.11% against the dollar and traded at 158.35. Japan’s currency has weakened sharply over the last year. At roughly the same point a year ago, one dollar was worth around 145 yen. Lately, the dollar has been close to 160 yen. After Monday’s economic data was published, it was changing hands at about 159 yen.

Japan also paid much more for goods coming into the country. Imports increased 27.8% in July from the previous year, the biggest annual rise since November 2022. Analysts had predicted a 26.5% increase, leaving the actual figure above expectations.

Oil played a big part in the higher import total. Japan’s petroleum import bill jumped 87.8% as crude became more expensive during the Iran war. Businesses and households have had to deal with higher energy costs as a result.

The second quarter was the first full three-month stretch to capture the economic impact of the Iran war. Energy remained costly through that period, adding to household and business expenses while domestic spending was already losing steam.

Exports keep Japan’s economy growing while weak domestic spending limits second-quarter GDP

The economy of Japan recorded an annualized growth rate of 1.1% in the second quarter. This is below economists’ estimate of 2%. The economy of Japan also grew at a 2.1% annualized rate in the quarter preceding the second quarter.

This growth rate was below economists’ expectations. The growth rate between the quarter under review and the previous quarter was just 0.3%. This is below economists’ estimate of 0.5%.

The strongest contribution to GDP came from exports. Foreign trade contributed by 0.5 percentage points to GDP in the second quarter. Domestic demand on the other hand reduced growth by 0.2 percentage points.

A year ago, Japan’s economy grew 0.7%, up from the 0.5% annual growth recorded during the first quarter.

The Bank of Japan also revised its forecast earlier this month when it released its latest outlook for economic activity. The central bank now sees growth of 0.6% for the 2026 fiscal year ending in March 2027, compared with its previous estimate of 0.5%.

Japanese Prime Minister Sanae Takaichi has expressed her intention to return growth to the right track. Nevertheless, at present, approval ratings for Sanae are higher than for some other prime ministers in Japan, although those ratings have been gradually decreasing.

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