(July 22): Japan’s trade deficit unexpectedly widened in June as the weak yen inflated the value of imports and the war in Iran made oil more expensive.

The trade deficit expanded to ¥406.9 billion (US$2.5 billion or RM10.21 billion) on an unadjusted basis from a revised ¥391.8 billion gap in May, the Finance Ministry reported Wednesday. Analysts had forecast a ¥120 billion deficit.

The value of imports rose 25.4% in June from a year ago while the value of exports gained 19.3%.

The data show that the war in Iran continues to disrupt Japan’s energy supplies. Typically Japan relies heavily on the Middle East for the bulk of its energy imports, but the country has diversified its sources to procure a stable supply of oil through March 2028.

The report showed the value of oil imports from the US soared roughly 900% and volumes were up 460%. Japan bought less oil from the Middle East.

Koya Miyamae, senior economist at SMBC Nikko Securities Inc, acknowledged the progress in securing oil from other places. He noted that exports are growing too, but could be a sign of exporters passing on higher import costs.

“I expect that for the time being, the rise in import prices will outpace the rise in export prices, and the trade deficit will continue to widen,” Miyamae said.

The US and Iran signed an interim peace deal in June to halt fighting and reopen the Strait of Hormuz, a crucial waterway to transport crude. But the situation has deteriorated since then with military strikes resuming and oil prices rising again.

The trade report showed oil imports fell in volume but rose nearly 60% in value, pointing to higher prices. Oil imports had plunged by both measures in May.

The yen traded at 159.69 against the dollar on average in June, 10.9% weaker than a year ago, according to the ministry. The currency has continued to weaken, hitting a fresh four-decade low overnight as oil prices rose and the dollar strengthened. A weaker yen makes it more expensive to import materials while it gives exporters a competitive advantage overseas.

Exports remained robust thanks to global demand for artificial intelligence chips, with outbound shipments of electronic components like semiconductors up about 54%. Exports of cars and non-ferrous metals also rose notably. By country, exports to the US were up 13%, led by autos, while those to China advanced thanks to semiconductors and raw materials.

The trade surplus with the US narrowed in June for a seventh straight month, as Japanese companies adjust to tariffs imposed by the Trump administration. The deficit with China continued to widen.

The data still suggest trade will weigh on growth in the second quarter, when economists largely expect a slowdown due to the impact of the war in Iran. The government’s initial estimate of gross domestic product in the period is due next month.

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