Japan's Trade Balance Rebounds in February Amid Export Improvement Despite Weak Domestic Demand

Tokyo. Japan's trade balance saw a significant turnaround in February, achieving a trade surplus of 57.3 billion yen (approximately $360 million), reversing the deficit recorded the previous month, driven by improved exports despite weak domestic and Chinese demand, according to government data.

Preliminary seasonally adjusted data released by the Ministry of Finance showed that exports rose by 4.2 percent to 9.57 trillion yen, signaling a better-than-expected performance. Meanwhile, imports, which had fallen by 2.5 percent in January, increased by 10.2 percent to 9.51 trillion yen in February, reflecting the impact of rising energy costs and raw material prices.

The surplus in February is being viewed as a sign of recovery, especially after Japan recorded a large trade deficit the previous month. However, analysts remain uncertain about the long-term sustainability of this improvement.

Risks to oil supply have increased due to disruptions in the Strait of Hormuz caused by the conflict with Iran in the Middle East. Since Japan imports almost all of its oil, rising energy prices are expected to further increase import costs. Brent crude oil prices in the international market recently reached nearly $100 per barrel.

Despite geopolitical tensions, the weak yen appears to offer some relief to Japan. The yen has weakened against the US dollar, reaching around 159 yen, compared to less than 150 yen a year ago. This is analyzed as boosting export competitiveness.

However, exports to major trading partner China fell by 10.9 percent, partly attributed to unusually weak demand during the Lunar New Year. Exports to the United States also decreased by eight percent, mainly due to a decline in auto exports. Pressure on the auto industry continues due to the 15 percent tariff imposed by US President Donald Trump on Japanese vehicles.

In contrast, exports to Europe increased significantly, rising by 17 percent compared to a year ago. Exports to other Asian countries also grew by 2.8 percent.

Attention is now focused on the Bank of Japan's monetary policy. A decision regarding interest rates is expected following the two-day meeting. Tim Waterer, Chief Market Analyst at KCM Trade, indicated that central banks might signal a shift towards tighter policies only after assessing whether rising oil prices are temporary or a long-term trend.

Investors are also keenly watching the summit meeting between US President Donald Trump and Japanese Prime Minister Sane Takaichi later this week, as it could set a new direction for economic and trade relations.