TOKYO – Japan’s trade balance swung to a deficit for the first time in four months as the weak yen inflated the value of imports, even as volumes fell.The trade balance flipped to a 378.6 billion yen (S$3.02 billion) deficit in May on an unadjusted basis, the Finance Ministry reported on June 17. Analysts had forecast a 547.6 billion yen deficit.The value of imports increased 12.5 per cent in May from a year ago, while the value of exports gained 17 per cent.However, by volume, imports fell by nearly 7 per cent, indicating that the weak yen is making imports more expensive and offsetting the rise in exports, which rose at the fastest pace since late 2022.The yen traded at 158.29 against the US dollar on average in May, 10 per cent weaker than a year ago, according to the ministry.A weaker yen makes it more expensive to import materials, including energy resources, squeezing profit margins for suppliers even as exporters gain a competitive advantage overseas.Japan’s Prime Minister Sanae Takaichi has created an extra budget to ease the pain for households by subsidising utility bills.“Setting aside the portion where values are inflated by the weak yen, it is difficult to imagine that exports from Japan will grow significantly while countries across Asia are calling for austerity measures,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Therefore, I expect the trade deficit to continue.”The gain in imports was driven by a 55 per cent jump in the value of inbound semiconductor and electronics shipments, as well as a 48 per cent advance in communication devices.Oil imports plunged by both volume and price, highlighting the challenges for Japan posed by the war in Iran. Typically, Japan relies heavily on the Middle East for the bulk of its energy imports.Based on the trade data, the US appears to be partly filling that gap. Imports of petroleum products from the US were up more than 660 per cent, while crude imports also surged. Japan’s trade ministry has said it expects to secure a stable oil supply through March 2028.Conditions for global oil supplies may improve in the coming months as the United States and Iran have reached an interim agreement to reopen the Strait of Hormuz. US President Donald Trump said the waterway would be reopened on June 19 after the agreement is signed.Exports remained strong amid an ongoing boom in demand for tech products tied to artificial intelligence, with outbound shipments of chips up 61.2 per cent, including a surge for those heading to China. Auto exports climbed nearly 19 per cent and exports of non-ferrous metals were also up notably, after starting from a lower base in 2025.Even so, the deficit suggests trade may weigh on growth in the second quarter, when economists largely expect a slowdown due to the impact of the war in Iran. That has created a tricky situation for Bank of Japan (BOJ) policymakers, who signalled an intent to raise interest rates further to tame inflation without restraining the economy.The BOJ raised its benchmark interest rate on June 16 to the highest since 1995 and pledged more hikes to come, fuelling speculation of another move before the end of 2026.The trade surplus with the US narrowed for a sixth straight month, as Japanese companies continue to adjust to tariffs imposed by the Trump administration.In 2025, Trump agreed to set levies at 15 per cent on Japanese products and lower the duty for cars to the same level, while Tokyo pledged to boost its investment in the US. The US is proposing new tariffs on imports from trading partners including Japan, but Japanese Trade Minister Ryosei Akazawa said he confirmed with US Commerce Secretary Howard Lutnick that no additional tariffs beyond those in the 2025 deal will be imposed. BLOOMBERG