Japan: U.S. tariffs push down exports for third month in July
Latest reading: For the first time since the pandemic, in July, yen-denominated merchandise exports shrank annually for the third consecutive month, declining 2.6% (June: -0.5% yoy). The contraction was sharper than expected by economists and was the largest since February 2021.
The value of shipments to the U.S. decreased for the fourth month running, plummeting 11.4%, likely affected by Trump’s tariffs.
Meanwhile, yen-denominated merchandise imports fell 7.5% in July, after rising 0.3% in June.
Overall, the yen-denominated merchandise trade balance flipped to a JPY 0.1 trillion deficit in July from a JPY 0.2 trillion surplus in the previous month.
Outlook: Since Trump unveiled his “reciprocal” tariffs in April, our panelists have significantly cut their forecasts for Japan’s growth of exports of goods and services in 2025. That said, since Japan and the U.S. signed a trade deal on 23 July, our panelists have raised their 2025 export forecasts by roughly 0.7 percentage points. Under the deal, the U.S. will levy tariffs of 15% on Japanese goods, higher than before the start of Trump’s term but still providing a lifeline to Japan’s auto industry, which had been facing levies of 27.5%.
Overall, exports are still seen expanding more quickly in 2025 than in 2024, boosted by higher demand for IT products, a Japanese forte.
Panelist insight: EIU analysts point to the limit of the U.S. trade deal:
“Looking ahead, the lack of clarity on US tariff implementation has led Japanese businesses to take a cautious stance. Although the US and Japan reached a deal on July 22nd that saw the US reciprocal tariff on Japan reduced to 15% (from the revised threat of 25%), many points remained unclear and subject to different interpretations from each side […Moreover,] revised tariff rates, though lower than initially announced in April, mean that the US weighted average tariff rate on Japan will go up to 17.8%, from 1.5% in 2024; this is still a hefty increase.”