Shipping container loads dock at Tokyo Bay. Japan is heavily reliant on exports (e.g., automobiles, electronics), faces risks from U.S. tariffs, especially on cars (a proposed 25% tariff during Trump’s first term was deferred but remains a concern). Higher tariffs could reduce Japan’s U.S. market access, increase consumer prices, and hurt GDP growth. However, Japan’s strategic alignment with the U.S. and exemptions from some tariffs (steel tariffs in 2018) offer partial relief. Japan has also pivoted to diversify trade via agreements like the CPTPP and RCEP, reducing dependence on the U.S. market.
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Exports from Japan in May declined 1.7% year over year, marking the sharpest decline since September 2024 as the country continues to grapple with trade uncertainties.
The fall was softer than the 3.8% decline forecasted by economists polled by Reuters, but was a reversal compared to the 2% gain recorded in April.
Data from Japan’s trade ministry revealed that exports to the U.S. continued to decline, falling 11.1% year over year. Exports to China, Japan’s largest trading partner, was down 8.8%.
Japan’s global automobile exports dropped 6.9%, but notably, exports of motor vehicles to the U.S. plummeted 24.7% compared to the same period last year.
Japanese carmakers accounted for 28.3% of all exports to the U.S. in 2024, according to customs data. Besides the current 25% levy on its auto, steel exports to the U.S., Japan is also facing a 24% ‘reciprocal’ tariff rate on all other exports starting on July 9.
The data comes a day after the Bank of Japan highlighted in its monetary policy statement that the country’s growth was likely to “moderate,” due to factors like trade, which would lead to a slowdown in overseas economies and a decline in domestic corporate profits.
“It is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them,” the BOJ added.
Stefan Angrick, Head of Japan and Frontier markets economics at Moody’s Analytics, said that tariffs are the “main threat” to Japan’s outlook.
“The deteriorating trade outlook doesn’t bode well for exports in the months ahead. Even if Japan and the U.S. reach a deal that softens some of the more punitive U.S. tariffs, a full return to pre-Trump trade terms is unlikely,” he said.
Falling exports had already made a dent in Japan’s GDP, with the country’s economy shrinking 0.2% in the quarter ending March, compared to the preceding period, marking the first time in a year that the economy contracted on a quarter-on-quarter basis.
Imports to the world’s third-largest economy fell 7.7% in May, compared to the Reuters poll expectations of a 6.7% decline.
Japan’s trade deficit stood at 637.6 billion yen in May, smaller than the 892.9 billion yen deficit expected by the Reuters poll.
On Wednesday, U.S. President Donald Trump reportedly said that Japan was being “tough” in trade talks, after six rounds of negotiations between Japan’s top negotiator Ryosei Akazawa, U.S. Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent failed to yield a breakthrough.
Louis Chua, Equity Research Analyst for Asia at Julius Baer, noted that Japan’s Prime Minister Shigeru Ishiba had reportedly emphasized the significance of the automobile industry as a “major national interest,” and that Japan would likely prioritize concessions for its key automobile sector during trade talks.
