Impacted by the shift in energy supply, Japan recorded a trade deficit in June.

Japan's trade deficit in June was higher than expected. Despite the growth in exports driven by demand for semiconductor-related products, this increase was offset by higher energy import costs from the Middle East. Government data released on Wednesday showed that Japan's exports increased by 19.3% year-on-year, thanks to strong demand for electronic components, non-ferrous metals, and automobiles. At the same time, imports grew by 25.4%, resulting in a trade deficit of 406.9 billion yen. Economists surveyed by the London Stock Exchange Group had earlier predicted that Japan's exports in June would increase by 18.6% year-on-year, imports would increase by 21.0%, and the trade deficit would be 120 billion yen. The higher growth in imports than exports is due to the Japanese government seeking to procure energy from routes outside the Strait of Hormuz, which is affected by regional conflicts. The cost of importing crude oil from these alternative sources is often higher than Middle Eastern oil, thus exacerbating the trade deficit. Bank of Japan policymakers are closely assessing the impact of Middle East uncertainties on the corporate sector and the overall economy to determine the timing and pace of further interest rate hikes. It is widely expected that the central bank will maintain its monetary policy unchanged this month as it evaluates the impact of the last interest rate hike, which raised the policy rate to 1%.