Japan's Export Engine Cools for Second Straight Month Despite Chip Surge

A Surprising Stumble in Japan's Trade Momentum

Japan's exports slowed from 19.3% year-on-year in August to 16.7% in September, missing market expectations of 20.1% — though shipments still recorded their 13th consecutive month of growth. For a country that has leaned heavily on overseas demand to fuel its economic recovery, the back-to-back slowdown is raising eyebrows. Export growth slowed for a second straight month after reaching a near four-year high in July.

Japan's exports rose 16.7% year-on-year to JPY 10,972.3 billion in September 2026, falling short of market expectations despite strong demand for AI-related chips and semiconductors — marking the slowest pace since May and reflecting mounting risks from supply chain disruptions tied to the conflict in the Middle East.

Chips Soar, But Can't Carry the Whole Load

Semiconductor-related products remained the principal source of export strength, reflecting continued global investment in artificial intelligence infrastructure. Semiconductor exports surged 49.4% year-on-year by value, while shipments of semiconductor manufacturing equipment climbed 43.9% — together contributing approximately 5.1 percentage points to overall export growth. That's a remarkable performance by any measure, but it wasn't enough to offset weakness elsewhere.

Demand from Asian technology manufacturers was particularly robust, with exports to South Korea rising 35.5% and Taiwan 37.8%. Meanwhile, exports of motor vehicles to the U.S. increased 31.0% by value and those to the EU climbed 31.9%, contrasting sharply with a 59.8% contraction in shipments to China. Overall exports to the U.S. rose 22.9%, compared with just 8.6% growth to China.

Energy Costs and a Wider-Than-Expected Trade Gap

Imports also moderated from 28.0% to 18.9%, slightly below expectations of 19.6%. The trade deficit narrowed from ¥1.1 trillion to ¥536.6 billion, but remained substantially wider than the forecast ¥181 billion — and compared with a ¥277.7 billion deficit a year earlier, the shortfall nearly doubled, highlighting persistent pressure on Japan's external trade balance despite strong export growth.

Tokyo's imports of petroleum climbed 51.1% by value in September, with inbound shipments from the U.S. surging nearly 820%, while those from the Middle East inched up just 1.5% as the conflict in the region continues to impede supplies. That dramatic shift in energy sourcing is quietly reshaping Japan's import bill and squeezing its trade position from both sides.

What This Means for Markets and Policy

Following the data release, the benchmark Nikkei 225 was up 1.8%, while the Topix gained 1.14% — a signal that markets weren't entirely spooked, perhaps reassured by the unbroken streak of export growth. Still, the miss was too large to ignore. Exports have supported Japan's economic growth this year, making the slower pace relevant to markets watching the yen and interest rates.

The data comes as the Bank of Japan is set to meet next week, and Reuters poll estimates indicate that the central bank is set to hold its policy rate steady at 1%. With trade momentum softening and energy costs climbing, the Bank of Japan will be navigating a delicate balance — keeping policy tight enough to manage inflation without choking off the export-driven recovery that has defined Japan's economic story over the past year. Two consecutive months of slowing growth won't trigger alarm bells on their own, but a third would be a very different conversation.