MIDF Amanah Investment Bank Bhd (MIDF Research) reported a notable recovery in Japan's trade performance for October 2024, driven by a surge in semiconductor-related exports to China. Exports grew by 3.1% year-on-year, reversing a 1.7% decline in September, reaching a three-month high of JPY9.4 trillion.

Imports rose modestly by 0.4% year-on-year to JPY9.9 trillion, resulting in a significantly narrower trade deficit of JPY461.3 billion, down 34.4% from the previous year. The recovery in exports was led by the chemicals sector and semiconductor machinery, with semiconductor machinery exports surging by 42.6% year-on-year, while integrated circuits exports grew by 1.6%.

However, export performance was partially offset by declines in transport equipment (-4.4%) and mineral fuels (-39.0%). On the import side, a contraction in mineral fuels (-11.5%) was attributed to falling fuel costs, while machinery imports increased by 12.5%, buoyed by strong demand for computers and related units.

China, the US, and Western Europe remained Japan's top export destinations. Exports to China rose by 1.5%, supported by semiconductor demand despite a sharp drop in transport equipment. Exports to the US and Western Europe, however, fell by 6.2% and 7.2%, respectively, reflecting cooling demand for machinery and transport equipment.

In the context of Malaysia, Japan's exports grew by 3.7% year-on-year, while imports surged 11.2%. Currency fluctuations played a role, as Malaysia's exports to Japan moderated by 0.4% year-on-year in ringgit terms, while imports from Japan declined by 4.5%.

MIDF Research noted the sustained global demand for semiconductors, which continues to underpin Japan's export recovery. Given Malaysia's recent growth in electrical and electronics (E&E) exports, MIDF Research maintains a positive outlook for Malaysia's external trade in the near term, supported by the ongoing recovery in the semiconductor sector.

However, uncertainties surrounding potential US protectionist policies under President-elect Donald Trump remain a key risk to Japan's trade prospects, particularly for machinery and transport equipment exports.