Japan's export growth eased slightly in August but remained elevated, underpinned by a surge in semiconductor and chip manufacturing equipment shipments, according to data released by the Ministry of Finance on Wednesday. The country's export value jumped 19.3% year-on-year, cooling from July's 23.2% expansion, marking the 12th consecutive month of growth—slightly above the 18.4% median forecast by economists.

Imports climbed 28%, exceeding the predicted 26.3% gain, while the unadjusted trade deficit widened to 1.1 trillion yen, a fourth straight month in the red, versus a revised deficit of 6383 billion yen (approximately $41 billion) in July.

The latest report highlights how market dynamics are shaping trade flows. With Brent crude averaging around $88 per barrel in August and the yen hovering near the 160-per-dollar threshold, Japan's crude oil import value surged roughly 59%, though volume grew only 3.6%.

"High oil prices are inflating import costs and expanding the trade deficit," noted Atsushi Takeda, chief economist at the Itochu Research Institute. "Given that crude has already surpassed $100 per barrel, I expect this to keep widening the deficit, making it increasingly difficult for Japan to return to a surplus."

Last week, Brent crude broke above $100 per barrel as attacks in the Strait of Hormuz escalated and both the US and Iran positioned for a prolonged conflict. Meanwhile, the yen has appreciated more than 3% against the dollar since September, making it the best-performing Asian currency during that timeframe.

By destination, exports to the US grew 24.9%, while shipments to China and Europe expanded by 20.6% and 11%, respectively. Semiconductor and other electronic component exports led the overall rise, jumping 52%. Notably, shipments of these products to China more than doubled, and semiconductor manufacturing equipment exports to both the US and the European Union grew by over 100%. Automobile exports also increased, though at a slower pace than in previous months.

Japan's crude oil imports from the US soared over 1000% to 400 billion yen, whereas imports from the Middle East edged up just 3.7% in value, with volume plunging about 31%. Amid ongoing shipping disruptions from the conflict, Japan has been reducing its dependence on Middle Eastern oil, turning to the US for stable supply.

A senior US energy official under President Trump pushed back on speculation that fuel exports might be banned before the midterm elections to lower domestic prices. Interior Secretary Doug Burgum stated earlier this week, "If we thought an export ban would really bring prices down, we'd consider it, but that's just not the case."

According to ministry data, the average yen-dollar exchange rate in August stood at 160.64, down 8.7% from a year earlier. A weaker yen inflates the cost of raw material imports while giving exporters a competitive edge overseas. Although the yen has since firmed, it remains well below its 10-year average—trading around 155.18 to the dollar in Tokyo on Wednesday morning, compared with a 10-year average of 126.55.

Economists say the trade outlook remains bright, largely thanks to sustained demand for cutting-edge technology. "I believe demand for AI-related products will stay robust, so I expect exports to remain supported," Takeda added.