Japan Imports Jump to Record High on Oil Price Surge, Complicating BOJ Policy

• Japan’s imports jumped to a record high in June as a weak yen and soaring oil prices drove up import costs and inflation, leaving the Bank of Japan (BOJ) in a policy bind. The value of imports surged 25.4% year over year to ¥11.3Tn ($69.25Bn), exceeding forecasts for a 21% increase and marking the fastest growth since November 2022.
• Crude oil was the main driver of the increase. Although import volumes fell 13.7% from a year earlier, the value of crude oil purchases soared 59.3%, with the yen-denominated unit cost climbing to a record high. Japan also increased purchases from the United States and Russia as declines in imports from the Middle East moderated.
• The swelling import bill has become a growing concern for policymakers, with the yen’s weakness amplifying inflationary pressures even as officials seek to safeguard a fragile economic recovery. The BOJ is widely expected to leave interest rates unchanged next week but maintain its tightening bias as higher energy costs and a weak currency continue to fuel inflation risks.
• Exports increased 19.3% year over year in June, exceeding forecasts for an 18.6% gain and accelerating from 16.8% in May. Growth was supported by the weak yen and strong demand linked to AI-related data centres, while exports to the United States rose 13% on solid demand for fuel-efficient hybrid vehicles.
• Despite strong export growth, Japan recorded a larger-than-expected trade deficit of ¥406.9Bn ($2.49Bn), compared with forecasts for a ¥120Bn deficit. Renewed hostilities between Iran and the US have also raised concerns that prolonged instability could weigh on global economic activity and increase the risk of a broader slowdown.

(Source: Reuters)