Japan’s export sector showed a stronger-than-anticipated rebound in October, with demand from China and other Asian markets underpinning growth despite growing global risks. Exports rose by 3.1% year-on-year, driven by robust shipments of chip-making equipment, particularly to China, according to data released by the Ministry of Finance on Wednesday. This marked a recovery from September’s 10-month low and significantly outpaced economists’ forecast of a 1% gain.
Figure 01
Key Drivers of Export Growth
The uptick was fueled by a 33% surge in semiconductor manufacturing equipment exports to China, reflecting early gains from Beijing’s stimulus measures aimed at stabilizing its economy. Exports of medical goods to the US also contributed to Japan’s positive performance, showcasing diversification in export markets. Imports, meanwhile, edged up 0.4%, defying predictions of a 1.9% contraction, leading to a widened trade deficit of ¥461.2 billion ($2.98 billion) from ¥294.1 billion in September.
Figure 02
Economic Context
Japan’s economy, while recovering, faces mixed signals. Although GDP grew for a second consecutive quarter through September, the pace has slowed, with net exports dragging on overall results. The October export growth offers a glimmer of hope for the final quarter of the year, particularly as demand from China—the largest trading partner—remains steady.
Hiroshi Miyazaki, senior research fellow at Itochu Research Institute, noted, “China’s stimulus measures have halted the deterioration in their economy, reversing earlier declines. This has created opportunities for Japanese exporters, especially in high-tech manufacturing.”
Global Challenges Loom Large
Despite the upbeat October figures, risks to Japan’s trade prospects remain significant. Exports to the US and Europe declined sharply in October, falling 6.2% and 11.3% year-on-year, respectively, as signs of slowing demand in developed markets became apparent. Rising protectionism, particularly in the United States, could exacerbate these trends.
President-elect Donald Trump’s proposed tariffs—60% on Chinese imports and 20% on other nations—are a growing concern. Such measures could disrupt global trade flows and dampen the tentative recovery seen in Japan’s export markets. Historical data from the 2018–2019 US-China trade war highlights the potential economic fallout: a 1% increase in tariff-inclusive export prices reduced Chinese exporters’ profit margins by 0.35 percentage points, according to research from Stanford University.
Japan’s central bank is keeping a close eye on these developments. Bank of Japan Governor Kazuo Ueda has expressed cautious optimism about global economic stability, though he emphasized the need to monitor risks tied to the US economy and its trade policies. “The Federal Reserve’s potential for a soft landing is encouraging, but uncertainties persist,” Ueda said earlier this week.
Currency Dynamics Add Complexity
October’s export growth came despite a 2% year-on-year strengthening of the yen, which averaged 145.87 to the dollar. A stronger yen typically makes Japanese goods less competitive abroad, underscoring the resilience of export growth. However, analysts warn that sustained yen appreciation could erode profit margins, particularly if coupled with increased trade barriers.
The Road Ahead
While October’s trade data provides a welcome boost to Japan’s economic outlook, analysts remain cautious about the months ahead. “We’re not yet at a stage where Trump’s tariff policies are directly impacting export volumes, but the uncertainty they bring is palpable,” Miyazaki cautioned.
Japan’s ability to navigate these global headwinds will hinge on balancing its reliance on Chinese demand with diversification into other markets. With global risks rising, policymakers and businesses alike must remain vigilant to protect the fragile recovery of Asia’s second-largest economy.
