Japan's trade deficit from April to September has doubled compared to last year. Despite record-high exports driven by global investments in artificial intelligence (AI), soaring oil procurement costs due to worsening Middle Eastern conditions have exacerbated the deficit. Analysts predict that the burden of high oil prices may continue into next year due to a lag in reflecting price increases in import costs.
According to preliminary trade statistics released by the Ministry of Finance on October 21, the trade balance for the first half of the 2026 fiscal year (April to September) showed a deficit of 2.8184 trillion yen (approximately $23.61 billion). This marks the 11th consecutive quarter of deficits, with the deficit amount increasing by 98.8% compared to the same period last year. Exports rose by 18.4% to about 63.46 trillion yen, while imports increased by 20.4% to approximately 66.28 trillion yen. Both export and import figures are the highest for any first half since comparable records began in 1979. The increase in exports was led by electronic components and semiconductor manufacturing equipment, while oil and electronic components drove the rise in imports.
Interestingly, Japan imported less oil but paid significantly more. The volume of oil imports in the first half decreased by 21.2% compared to the previous year, yet the import value surged by 26.3% to 5.7439 trillion yen. Daisuke Karakama, chief market economist at Mizuho Bank, noted that the release of strategic oil reserves this year has restrained oil imports. However, the increase in unit prices was much larger, with the price of oil imports in yen reaching 108,605 yen per kiloliter, a 60.3% rise and a record high.
The spike in prices is attributed to both rising oil prices and changes in procurement routes. Since late February, worsening conditions in the Middle East have made it difficult to procure oil through the Strait of Hormuz, prompting Japan to secure alternative supplies from the United States and other sources. In September, imports of U.S. oil reached 3.72 million kiloliters, nearly six times the amount from the same month last year.
These new procurement routes come at a higher cost. According to Nikkei, transporting U.S. oil via the Cape of Good Hope takes 45 to 50 days. The situation is similar for Middle Eastern oil. Due to safety concerns, oil tankers from the Middle East transfer their cargo to tankers bound for Japan outside the Strait, leading to skyrocketing freight costs.
Despite the widening deficit, exports related to semiconductors are helping to mitigate the impact. The trade balance in September showed a deficit for the fifth consecutive month, but the seasonally adjusted deficit decreased to 703.9 billion yen from the previous month. Exports of semiconductor manufacturing equipment in September increased by 38% in quantity and 44% in value compared to the previous year. Nikkei pointed out that global AI investments are supporting exports, making the recent widening of the trade deficit less severe than during the spike in oil prices following Russia's invasion of Ukraine in 2022-2023.
The outlook remains concerning. On October 21, West Texas Intermediate (WTI) crude oil for December delivery was trading around $98 per barrel. Economist Karakama explained that fluctuations in U.S. oil prices may take 3 to 3.5 months to reflect in Japan's import costs. This suggests that current high oil prices could push import costs higher into next year. He warned, "If there are no releases from strategic reserves next year, there is a possibility of an annual trade deficit exceeding 10 trillion yen."
Rising energy prices are also burdening businesses and households. In September, the import price of liquefied natural gas (LNG) reached 123,574 yen per ton, about a 50% increase from the same month last year. Japan has many LNG contracts linked to oil prices, meaning that rising oil prices will be reflected in LNG prices months later. The increase in LNG prices could raise production costs for businesses and electricity and gas bills for households. Concerns are also growing that a larger trade deficit due to energy import burdens could lead to increased demand for selling yen and buying dollars, further weakening the yen.
* This article has been translated by AI.
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