Japan records ¥1.1 trn trade deficit in Aug as oil prices surge

Japan's trade deficit expanded to ¥1.1 trillion ($7 billion) in August, driven by surging oil prices caused by Middle East conflicts, according to the Finance Ministry's preliminary data. This marked the fourth consecutive month of losses for the country, which imports nearly all of its oil, primarily through the Strait of Hormuz, an area affected by the Iran war.

Japan's imports surged by 28% compared to the same period last year, reaching 11.15 trillion yen ($71.9 billion), while exports grew 19.3% to 10 trillion yen ($64.5 billion), mainly due to computer chips and automobiles.

Exports to the US increased by 24.9% year-over-year, while imports from the US rose by 55.2%. Exports to the Middle East declined by 5.2%, and imports fell by 4.2%. European exports edged up by 11%, but imports grew by 20.4%. Brent crude oil prices have skyrocketed over the past year, from the $60 per barrel range to over $100, peaking at $118 in April.

The U.S. and Japan are now discussing potential interest rate adjustments, with Treasury Secretary Scott Bessent reportedly urging the Bank of Japan to raise rates, which could support the yen. The yen has weakened against the US dollar, trading around 155 yen, and could fall to 150 yen or lower this year.

The Bank of Japan is set to meet this week to decide on its benchmark interest rate, with markets anticipating a 1.25% increase from the current 1%. A stronger yen would aid Japan in importing oil and other essential goods, including food and raw materials, while potentially harming major exporters like Toyota Motor Corp. Prime Minister Sanae Takaichi has pledged additional government spending and a reduction of the consumption tax on food.

The U.S. Federal Reserve is expected to raise its short-term interest rate for the first time in three years to combat persistent high inflation.