Japan's exports grew at the fastest pace in three years during January, as strong demand for artificial intelligence (AI)-related chips helped offset a decline in automobile shipments to the United States. According to a report released by the Ministry of Finance on Wednesday, overall export values increased by 16.8% year-on-year in January, marking the largest gain since November 2022 and exceeding analyst expectations of 13%. Exports of semiconductors and other electronic components rose by nearly 40%.

Takeshi Minami, chief economist at Norinchukin Research Institute, noted that robust shipments in certain semiconductor-related categories were likely driven by rising AI demand. He added that the data confirmed limited impact from U.S. tariffs, as a weaker yen continued to support Japanese exporters.

By region, exports to China increased by 32%, while those to the European Union rose by 29.6%. In contrast, exports to the U.S. fell by 5%. However, the export figures to China were distorted by the timing of the Lunar New Year holiday, which occurred in January last year. Minami commented, "Special factors are at play, including pre-holiday shipments, so Japan’s exports are not as strong as the headline numbers suggest. Still, it can be said that they are gradually recovering."

Automobile exports to the U.S. by value dropped by 9.9%, even though the number of vehicles shipped declined by only 0.8%. This discrepancy suggests that Japanese automakers are continuing to cut prices and sacrifice profit margins in order to maintain market share in the United States amid the threat of tariffs imposed by the Trump administration. The resulting squeeze on profitability may limit these companies’ ability to raise wages domestically.

Although the yen showed little change compared to the same period last year, limiting its influence on the latest trade figures, it remains weak by historical standards, which continues to support export competitiveness. According to the Ministry of Finance, the average exchange rate in January was ¥156.91 per U.S. dollar, reflecting a 0.2% appreciation from the same month a year earlier.

Minami further cautioned that exports are unlikely to continue growing at such a rapid pace and are not expected to become the primary driver of Japan’s overall economy. He emphasized that growth in consumer spending will be crucial, especially as inflationary pressures are projected to ease.

The release of these figures comes amid growing optimism from the World Trade Organization regarding the outlook for global trade. The WTO Director-General stated last month that rapid advances in artificial intelligence are likely to support growth in worldwide merchandise trade this year, helping to counter headwinds from U.S. tariffs.

Data indicate that merchandise exports have continued to grow as businesses adapt to U.S. tariff measures, with some relief provided through trade agreements last year. Japan and the United States are working to implement a deal under which Japan has committed to increasing investment in the U.S., a move that also reduced tariffs on Japanese auto imports.

Japan plans to invest $36 billion in U.S. oil, gas, and critical minerals projects, representing the first tranche of a $550 billion commitment. These plans were announced ahead of a scheduled visit by Prime Minister Sanae Takaichi to Washington in March, where she is expected to meet with U.S. President Donald Trump.