Japan’s May Exports Top Forecasts as AI Demand Offsets Geopolitical Disruptions

Japan’s exports increased 17.0% year on year in May, up from 14.8% in April and above the 16.2% forecast, extending the country’s export growth streak to a ninth straight month. Demand for semiconductors and electronic components tied to the global artificial intelligence boom helped offset disruptions linked to the US-Israeli conflict with Iran and the temporary closure of the Strait of Hormuz. Shipments to the United States rose 12.5% year on year, while exports to China advanced 17.9%.

Despite the strong headline reading, the underlying data were more subdued. Export volumes rose just 0.5% year on year, indicating that much of the increase reflected higher prices rather than stronger underlying demand. A weaker yen and elevated commodity prices also lifted the value of both exports and imports. Electronic components remained a key support, as AI-related investment and data-center demand continued to underpin prices for memory chips and non-ferrous metals.

Imports rose 12.5% year on year, slightly below expectations of 12.8%. Although crude oil import volumes collapsed, higher energy prices kept import values elevated. Crude oil imports fell 57.3% in volume terms and 28.5% in value terms, while yen-denominated unit costs reached a record high. Imports from the Middle East plunged 61.9%, partly offset by a 24.0% increase in imports from the United States.

Japan posted a trade deficit of JPY 378.7 billion, narrower than the expected shortfall of JPY 564.6 billion. The figures suggest that Japan’s trade sector remains resilient, though that resilience continues to depend heavily on favorable price effects and AI-related demand rather than broad-based growth in export volumes.

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