Japan’s economy is showing early signs of a fragile recovery, as seen in the latest trade data released on Thursday. The country posted a trade surplus of ¥153.1 billion in June, a sharp turnaround from the previous month’s ¥638.6 billion deficit. While this shift suggests some resilience in Japan’s external sector, the figure missed expectations for a ¥353.9 billion surplus, exposing deeper issues within Japan’s export landscape. Exports declined 0.5% year-on-year, marking the second consecutive monthly contraction, largely due to waning demand from China, Japan’s top trading partner. This weakness reflects the continued burden of U.S. tariffs and global economic uncertainties, especially in high-tech and industrial goods where Japan has traditionally excelled. In contrast, imports rose by 0.2% year-on-year, outperforming the anticipated 1.6% drop. This rebound from May’s 7.7% fall points to recovering domestic demand, possibly supported by government stimulus and a gradual return in consumer spending. However, rising political tensions within Japan and increased trade friction globally threaten to undercut this progress.
With Japan’s Upper House election approaching on July 20, recent polls suggest that the ruling Liberal Democratic Party and its coalition partner Komeito could lose their majority. Such an outcome would introduce new fiscal and legislative risks, potentially slowing economic reforms and weakening Japan’s stance in ongoing trade negotiations with the United States. President Donald Trump has escalated trade pressure, issuing tariff notices to over 20 nations including Japan. Tokyo is now staring down a 25% tariff on all exports to the U.S., heightening tensions amid already stalled trade talks. Domestically, Japan is grappling with falling real wages and cooling inflation, diminishing the likelihood of any interest rate hikes by the Bank of Japan this year. Investors are increasingly convinced that the central bank will maintain its ultra-loose policy for the foreseeable future.
On the global front, uncertainty around U.S. interest rate policy continues to ripple through financial markets. While some traders hope for rate cuts to cushion slowing growth, comments from key Federal Reserve officials suggest a more cautious stance. New York Fed President John Williams has warned that the economic damage from tariffs is only beginning to surface, and Dallas Fed President Lorie Logan emphasized that rising import costs are likely to feed inflationary pressures. Consequently, expectations for immediate rate cuts are fading, keeping the U.S. dollar firm and complicating the outlook for risk assets. Unlock global market opportunities with expert trading courses by MJFXM — learn, trade, and grow confidently.
Amid these shifting dynamics, oil prices offered some support to market sentiment. Brent crude rose to $68.79 a barrel and West Texas Intermediate to $66.69 in early Thursday trading, rebounding from the previous session’s dip. The gains were underpinned by a sharper-than-expected drop in U.S. crude inventories and a strong 8.5% year-on-year increase in China’s crude throughput for June, signaling robust fuel demand. However, larger-than-expected builds in gasoline and diesel stocks tempered the rally. Investors remain cautious as they monitor macroeconomic data from the U.S. and Japan, including retail sales, jobless claims, and consumer price indices. These figures, along with political developments and evolving trade policies, will likely dictate the next moves in the global financial and commodity markets.