Japan’s exports rose for a sixth straight month in February, beating estimates on strong Asia demand, even as escalating West Asia tensions and rising oil prices threaten to disrupt supply chains and growth
Japan’s exports extended their growth streak for a sixth straight month in February, underpinned by steady demand across Asia, even as escalating tensions in West Asia threaten to disrupt supply chains and cloud the outlook for the world’s fourth-largest economy.
Government data released on Wednesday showed exports rose 4.2 per cent year-on-year, comfortably beating market expectations of a 1.6 per cent increase. The rise was driven largely by resilient regional demand, although export volumes slipped 0.5 per cent.
The upbeat trade data comes against the backdrop of a deepening geopolitical crisis in West Asia, where the ongoing Iran conflict has triggered an oil price shock and heightened concerns among policymakers globally about slowing growth and rising inflation.
Japan, which relies heavily on imported energy to power its industrial base, is particularly vulnerable to prolonged disruptions in oil and raw material supplies. Economists warn that sustained volatility could eventually weigh on exports and industrial output.
“Supply constraints, especially in energy inputs like naphtha, are already forcing some chemical manufacturers to scale back production. Other sectors could begin to feel the impact with a lag,” Koki Akimoto, economist at Daiwa Institute of Research, told Reuters.
He added that automobile exports to West Asia could also come under pressure in the coming months as regional demand weakens amid the conflict.
Mixed regional trends
The February data revealed diverging export performance across key markets. Shipments to the United States fell 8 per cent from a year earlier, while exports to China dropped 10.9 per cent, partly reflecting distortions from the Lunar New Year timing. In contrast, exports to the rest of Asia grew 2.8 per cent, highlighting the region’s continued role as a demand anchor.
Japan’s trade balance swung to a surplus of 57.3 billion yen ($360.65 million) in February, defying expectations of a deficit, as export gains outpaced a slower-than-expected rise in imports. Imports increased 10.2 per cent year-on-year, below forecasts of an 11.5 per cent rise.
Recovery tempered by inflation risks
The trade figures add to signs of a modest recovery in Japan’s economy, with growth in the final quarter of 2025 revised up to an annualised 1.3 per cent, supported by robust business investment.
However, analysts caution that rising energy costs could complicate the recovery by fuelling inflation while dampening consumption—a classic stagflationary risk.
Market participants are now closely watching the Bank of Japan, which is widely expected to keep interest rates unchanged at its policy meeting ending Thursday, even as it maintains a tightening bias amid a weak yen and elevated input costs.
Economists warn that any further escalation in the conflict—particularly disruptions to critical oil transit routes such as the Strait of Hormuz—could push up import costs further while reducing shipment volumes.
“Higher crude prices are likely in the near term, but overall import volumes could decline as domestic demand softens,” Yasuhisa Irie, market economist at Mizuho Securities, told Reuters.
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