The latest trade figures will likely be a relief for Japanese authorities amid concerns that the yen's plunge since late 2012 has not translated into a big jump in export growth as domestic firms shift production overseas.
Japan's exports in July rose 3.9 percent on-year to 6.19 trillion yen, the first rise in three months, thanks to robust shipments of automobiles and electronic equipment such as parts for smartphones.
Imports rose 2.3 percent to 7.15 trillion yen, underpinned by purchases of oil and gas, which have shot up in the wake of the 2011 Fukushima nuclear crisis, when Japan shuttered its nuclear reactors.
Overall, the trade deficit last month came in at 964.0 billion yen ($9.4 billion), narrowing from 1.03 trillion yen a year ago, although it was wider than the June trade deficit.
"July's trade deficit was larger than expected, and indicates that net trade is unlikely to provide much support to GDP growth in the third quarter," Capital Economics said in a note.
"However, the recent improvement in external demand suggests that the shortfall will narrow further towards year-end."
Japan's trade deficit ballooned to a record in the first half of 2014 as exports fell, ramping up pressure on the central bank to unveil fresh measures to boost the economy.- Shaky recovery -
Domestic consumption following the tax hike -- rather than export demand -- was likely to be the key economic driver in the second half of the year, while the trade imbalance would likely narrow further as Japan looks to switch some of its atomic reactors back on, economists said.
"The partial resumption of nuclear energy generation should reduce fuel imports, albeit only gradually," Capital Economics said.
"As a result, import volumes should rise only modestly," it added.
"We still expect the recovery in domestic demand to resume in the second half of the year, but our forecasts foresee that it will take until early next year before domestic spending returns to the levels reached ahead of the sales tax hike."
Japan raised its sales tax to 8.0 percent from 5.0 percent on April 1, a move aimed at raising revenue to help pay down one of the world's heaviest public debt burdens.
But economists had warned that the levy increase could derail Prime Minister Shinzo Abe's bid to kickstart the long-laggard growth.
The plan involves big government spending, monetary easing by the central bank and a shakeup of Japan's heavily regulated economy.
On Wednesday, Credit Suisse also said it expected a gradual improvement in the trade balance on the back of stronger export demand.
"That said, the improvement could easily stop in the event of a downward shock to foreign demand and/or a material increase in import prices," it added in a note.