Strong exports to China drove Japan's overall exports in October to exceed expectations, increasing by more than 3%.

In October, Japan's export growth surpassed expectations, highlighting the strong demand for Japanese products from China and other Asian countries despite the increasing uncertainty in overseas markets. According to data from the Japanese Ministry of Finance on Wednesday, driven by strong growth in shipments of chip manufacturing equipment, especially for exports to China, Japan's exports in October increased by 3.1% compared to the same period last year, significantly exceeding economists' general expectations of 1.5%-2%. This growth also played a crucial role in supporting exports of medical supplies to the United States. After a decline in exports in September for the first time in 10 months, Japan's exports unexpectedly rebounded. In contrast, Japan's imports in October increased by 0.4% compared to the same period last year, while economists had previously predicted a possible decrease of 1.9%. The trade deficit soared from 294.1 billion yen to 461.2 billion yen (approximately 29.8 billion US dollars). Better-than-expected export growth has ignited hopes in the Japanese market that the country's economy can maintain its positive momentum for recovery, and they are hopeful that export data, which is crucial to the Japanese economy, will continue to provide strong support. Although Japan's Gross Domestic Product (GDP) achieved positive growth for two consecutive quarters in the quarter ending in September, the growth rate has slowed down due to net exports dragging down overall performance. Senior researcher at Itochu Corporation, Hiroshi Miyazaki, stated, "The data today gives hope for a recovery in external demand in the fourth quarter from October to December. The stimulus measures by the Chinese government have started to have positive effects." Detailed data shows that Japan's exports to China saw a significant increase of 1.5% in October after an unexpected sharp decline of 7.3% in September, with overall exports of chip manufacturing equipment from Japan increasing by one-third. Importantly, Japan's strong export data to China indicates that the massive stimulus measures taken by the government in the world's second-largest economy are beginning to yield results in certain areas, boosting overall consumption. Japan is a global leader in chip manufacturing equipment and chip raw material supply chains, occupying about 60% of the global chip manufacturing material market share and about 30% of the chip manufacturing equipment market share. Tokyo Electron, a chip equipment giant from Japan, is the strongest competitor to Applied Materials, a chip equipment leader from the United States, in areas such as Coater/Developer, ALD, CVD, PVD, RTP, CMP, etching, and ion implantation equipment. Despite the relative strengthening of the yen compared to extremely weak levels last year, Japan's exports increased in October. The Japanese Ministry of Economy, Trade, and Industry stated that the average exchange rate of the US dollar to the yen last month was 145.87, implying an appreciation of about 2% compared to the same period last year. However, at a time of unexpected export growth in the latest export data, Japanese government officials are becoming concerned about the global business outlook as Donald Trump prepares to return to the White House. If Trump fulfills his promise to increase tariffs, imposing comprehensive tariffs on 60% of China's imported goods and 20% of imported goods from other regions worldwide, global business leaders are preparing to face the extreme negative impact of US trade protectionism. It is worth noting that demand in some important regions around the world has already started to slow down, indicating that global demand has not fully entered a recovery curve. In October, Japan's exports to the United States decreased by 6.2%, while exports to Europe dropped by 11.3%, both showing continuous declines. The Bank of Japan is closely monitoring the trend of external demand, which is crucial for Japan's economic growth, as well as domestic price and wage growth rates to judge the timing of the next rate hike. The continued positive effects of strong exports may provide a powerful catalyst for Japanese prices, wages, and the overall economy. In a speech on Monday, Bank of Japan Governor Haruhiko Kuroda indicated that while there is an increasing possibility that the Federal Reserve will achieve a soft landing for the US economy, the Bank of Japan still needs to carefully assess various risks, including the potential policy impacts on the US economy. When asked about the potential impact of Trump's return to the White House, Kuroda pointed out that the economic policies introduced by the Trump administration will take a long time to clarify. On Monday, during an important speech closely watched by global investors, Bank of Japan Governor Kuroda avoided sensitive language about a rate hike in December or when a rate hike could happen in the future, emphasizing that some economic data will be the basis for a rate hike. Speaking to local business leaders in Nagoya in central Japan, Kuroda said, "The actual timing of policy adjustments will continue to depend on the evolution of economic activity and prices, as well as future financial conditions." However, Kuroda pointed out that the Bank of Japan is continuing to move towards a rate hike and is sticking to its standard position on this issue. He reiterated his position that if the Bank of Japan sees that global economic activity, as well as economic, wage, and price growth prospects in Japan, are achieved, the bank will continue to adhere to raising policy rates. A major concern for Japan's future export trade is President-elect Donald Trump's promise to impose tariffs on goods. Research from the Stanford University China Economy and Institutions Center shows that the precedent of the US-China trade war between 2018-2019 underscores the potential scale of future impact, where a 1% increase in export prices due to tariffs could lead to a 0.35 percentage point decrease in profit margins for Chinese exporters. With a new round of US-China trade war and the possibility of the US imposing tariffs on Japan as well, similar negative trade dynamics could offset the significant positive catalyst of the depreciated yen for large Japanese companies and erode their profit growth. "We have not yet reached a stage where the tariff policy of the Trump administration clearly affects export scale or exporter behavior," said Hiroshi Miyazaki, senior researcher at Itochu Corporation. "But we still have a sense of uncertainty. We need to continue to pay attention to the policy positions of the incoming Trump administration, especially regarding tariffs."