Japan's export growth accelerated to its quickest pace since 2022, driven by robust demand for domestic chips and automobiles, alongside the yen's slide to a four-decade low. Data from the Ministry of Finance released Thursday showed July exports climbed 23.2% year-on-year, up from June's 19.3% gain and surpassing the median economist forecast of 20.1%. This marked the strongest reading since October 2022.

Imports rose 27.8%, outpacing the prior month's 25.4% increase and beating expectations of 25.1%. On an unadjusted basis, the trade deficit widened to 634.5 billion yen from June's revised 409.9 billion yen, marking a third consecutive month of shortfalls. The rapid expansion in shipments suggests Japanese manufacturers have largely weathered the impact of Middle East tensions so far.

The figures offer an encouraging signal for the economy, which grew less than expected in the three months through June due to weak domestic demand. According to Nomura Securities economist Yuki Ito, exports of semiconductor manufacturing equipment and components are rising amid the recent AI boom, while chemical product shipments have also picked up. Ito noted that eased supply constraints on naphtha have helped lift exports that had previously been declining.

The soft yen has boosted shipment values and enhanced the competitiveness of Japanese goods overseas, serving as a key support for businesses. The currency touched a 40-year low against the dollar in July, with the average exchange rate at 161.83 yen per dollar, down 11.2% year-on-year. Global demand for AI chips has been a central driver, with exports of electronic components including semiconductors surging approximately 49%. Passenger car exports also rose 21%.

By destination, shipments to the United States increased 22%, while those to China and Europe grew 25.8% and 19.1%, respectively. Meanwhile, the conflict has continued to reshape Japan's energy procurement patterns following the effective closure of the Strait of Hormuz due to the Iran war. The trade report revealed a nearly 88% surge in total oil imports, with import volumes up 5.5%.

By volume share, imports from the United States jumped from 7% in February to 36% of the total, while the Middle East's share fell to 59%. Uncertainty persists around the conflict after the 60-day negotiation window under the US-Iran memorandum of understanding expired Monday without a permanent peace deal. The interim agreement, designed to address disputes over the Strait of Hormuz, Iran's nuclear program, and economic sanctions, failed to yield a lasting solution.

Economist Yuki Ito commented that shipping data suggests Japan continues to make progress in securing alternative supplies from the United States.