Japan’s Trade Deficit Hits $17.8 Billion As Iran War Sends Oil Prices Soaring

Japan’s trade deficit reached 2.81 trillion yen ($17.8 billion) in the first half of fiscal 2026 as the Iran war drove up oil import costs, with imports growing faster than exports despite record trade figures, government data showed on Wednesday.

According to preliminary figures released by Japan’s Finance Ministry on October 21, exports rose 18.4 per cent year-on-year to 63.5 trillion yen between April and September, while imports increased 20.4 per cent to 66.3 trillion yen. Both figures were records, but the faster growth in imports left Japan with a substantial trade gap.

Japan imports almost all the oil it consumes and has traditionally relied on shipments passing through the Strait of Hormuz, a critical global energy route severely disrupted by the conflict. The country has increasingly turned to alternative supply routes, raising transportation costs and the expense of securing crude oil.

Brent crude, the international benchmark, climbed from around $70 a barrel in February to approximately $100 recently, after exceeding $110 in recent months amid concerns about supply disruptions and escalating tensions in the Middle East. Higher oil prices also increase costs across industries, including plastics manufacturing and shipping.

Japan recorded a trade deficit for the fifth consecutive month in September, although the shortfall narrowed to 536.6 billion yen from 1.1 trillion yen in August. Imports rose 18.9 per cent year-on-year, while exports increased 16.7 per cent.

Strong demand for artificial intelligence-related products helped support exports, while automobile shipments also contributed to growth. However, rising energy costs continued to weigh on the country's import bill.

The weaker yen has compounded the pressure by making imported energy and raw materials more expensive. The US dollar has recently traded around the 150-yen level, adding to inflationary pressures on households and businesses.

The Bank of Japan raised its benchmark interest rate to 1.25 per cent from 1 per cent last month, its highest level in 31 years, as policymakers sought to support the currency and contain inflation. The bank's monetary policy board is scheduled to meet again next week. Its inflation target remains around 2 per cent.

Meanwhile, Prime Minister Sanae Takaichi's government has proposed cutting the consumption tax on food from 8 per cent to 1 per cent to ease the burden on lower-income households. The proposal is being debated in Parliament as Japan grapples with rising living costs and the economic impact of the Middle East conflict.