Japan's trade deficit hit a record 2.81 trillion yen ($17.8 billion) for the first half of the fiscal year, according to government data released on Wednesday. This deficit nearly doubled from the same period last year. The increase was driven by rising oil import prices amid the ongoing crisis in Iran. The Finance Ministry reported that Japan's exports rose 18.4% year-over-year to 63.5 trillion yen. Meanwhile, imports surged 20.4% to 66.3 trillion yen, both record highs for the country.
Key Details
The rise in oil prices has greatly affected various sectors, including shipping and plastic goods. Brent crude prices jumped from $70 a barrel in February to around $110 a barrel. This increase reflects the disruption in supply routes through the Strait of Hormuz, a key passage for Japan's oil imports. The volume of petroleum imports fell by 21.2%, but the value increased by 26.3%. Similarly, liquefied natural gas (LNG) import volumes decreased by 8.4%, while the value rose by 13.5%.
Background
Japan's heavy reliance on Middle Eastern oil, which made up over 90% of its imports before the crisis, has pushed the country to find alternative sources. The Japanese government has also started measures to improve energy security. This includes releasing crude from strategic reserves as part of a coordinated effort with the International Energy Agency (IEA). Recently, three bills were approved to support diversifying oil supplies and to help importers with high shipping costs.
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The rising trade deficit and high energy costs are likely to affect the Japanese yen and could lead to increased inflation, impacting consumer prices. A weaker yen against the dollar, trading around 150-yen levels, also raises import costs. Investors will be watching for the Bank of Japan's upcoming monetary policy meeting. Further interest rate adjustments may be discussed to address inflation concerns.
Based on reporting by: fortune.com, oilprice.com