Japan's Inflation Accelerated and Trade Deficit Shrank In October, Nikkei 225 Index Plunged 3%

Akira Ito
21 Nov, 2025
Tokyo

Japan's stock market indexes reversed the previous session's gains, mirroring another tech-driven sell-off on Wall Street overnight. 

The Nikkei 225 Stock Average dropped 2.4%, and the broader Topix decreased 0.2%, and they booked weekly losses of 3% and 2%, respectively. 

AI-linked stocks extended weekly losses in Friday's trading as investors avoided high-flying semiconductor equipment stocks amid growing fears of an AI bubble.

The yen hovered at 157.45 against the U.S. dollar after Prime Minister Takaichi announced a 21.5 trillion, or $135 billion, stimulus budget. 

The widely anticipated stimulus package, which is smaller than the estimated 25 trillion budget, will aim to finance defense-related spending, provide greater relief to consumers, and strengthen the broader economy. 

 

Yen's Weakness Contributed to Japan's Persistent Inflationary Pressures in October

Japan's annual overall and core inflation edged up in October, the Ministry of Internal Affairs and Communications said on Friday. 

Overall inflation accelerated to 3.0% from 2.9% in September, driven by higher electricity charges after the government ended the subsidy and persistent housing inflation. 

Core inflation, which excludes food but not fuel, edged up to 3.0% from 2.9% in September and advanced to a three-month high. 

Food prices, excluding fresh items, rose 6.4% from a year ago, largely because of a slowdown in the increase in the price of rice to 40%. 

The rise in overall inflation confirmed the negative impact of a weaker yen on import prices, fueling speculation that the Bank of Japan will be forced to raise rates in the near future.  

Core-core inflation, which excludes both fresh food and energy, advanced 3.1%, confirming underlying inflation supported by the weakness in yen.

 

Japan Logged Trade Deficit for Fourth Consecutive Month In October

Japan's exports and imports advanced for the second consecutive month in October and reached a seven-month high, according to the Ministry of Finance. 

Overall exports increased 3.6% to 9.77 trillion yen, and imports edged up 0.7% to 10.0 trillion yen, resulting in a trade deficit decline of 53.6% to 231.8 billion yen from a year ago. 

Japan's exports to the U.S. declined for the seventh consecutive month, driven by the weakness in shipment of automobiles, pharmaceuticals, and chip-making equipment. 

Exports to the U.S. decreased 3.1% to 17.5 trillion yen, or $11.1 billion; imports rose 20.9% to 1.22 trillion yen, shrinking the trade surplus by 33.6% to 529.4 billion yen. 

Japan's vehicle exports struggled to rebound even after the U.S. lowered its import duties to 15% from 27.5%, effective mid-September. 

Vehicle shipments to the U.S. decreased 7.5% from a year ago in September, the smallest decline in four months, and semiconductor equipment exports plunged 50%, and pharmaceutical shipments dropped 30.8%. 

Japan's exports to Asia advanced 4.2% to 5.3 trillion yen, and imports rose 0.6% to 5.1 trillion yen, pushing the trade surplus higher by eightfold to 209.1 billion yen. 

Shipments to the European Union increased 9.2% to 907.1 billion yen, and imports dropped 9% to 1.0 trillion yen, resulting in a trade deficit of 96.8 billion yen. 

Japan recorded a goods trade deficit with the European Union for the 21st month in a row, driven by a depressed increase in imports for the second consecutive year.  

 

Japan Indexes and Stocks 

The Nikkei 225 Stock Average dropped 2.4% to 48,626.69, and the broader Topix declined 0.2% to 3,292.14. 

Semiconductor equipment makers and AI supply chain-driven stocks led decliners in Tokyo on Friday. 

SoftBank Group plunged 11% to ¥17,090.0, Tokyo Electron decreased 7% to ¥30,180.0, Advantest Corp. dropped 11% to ¥18,525.0, and Disco Corp. fell 7% to ¥43,950.0.