Summary
- May exports -1.7% yr/yr vs forecast -3.8%
- Imports fall 7.7% yr/yr in May
- Japan scrambling to get exemptions from US auto tariffs
- Ishiba says some disagreements persist between Japan and US
TOKYO, (Reuters) – Japan’s exports fell in May for the first time in eight months as big automakers like Toyota were hit by sweeping U.S. tariffs, and the failure of the Asian nation to clinch a trade deal this week will likely pile pressure on its fragile economy.
Prime Minister Shigeru Ishiba said after the Group of Seven summit in Canada on Tuesday his country had not reached a comprehensive tariff agreement with the U.S. as some disagreements persisted between the two nations.
Japan and the U.S. “explored the possibility of a deal until the last minute,” he added.
Tokyo is scrambling to find ways to get Washington to exempt Japan’s automakers from 25% automobile industry-specific tariffs, which are dealing a blow to the country’s manufacturing sector. Japan also faces a 24% ‘reciprocal’ tariff rate starting on July 9 unless it can negotiate a deal with Washington.
Japan’s automobile sector accounted for about 28% of the total 21 trillion yen ($145 billion) worth of goods the Asian country exported to the U.S. last year.
Its total exports in May dropped 1.7% year-on-year by value to 8.1 trillion yen, government data showed, smaller than a median market forecast for a 3.8% decrease, and following a 2% rise in April.
Exports to the U.S. slumped 11.1% last month from a year earlier, the largest monthly percentage drop since February 2021, dragged down by a 24.7% drop in automobiles and a 19% fall in auto components, while a stronger yen also helped reduce the value of shipments. Exports to China were down 8.8%.
In terms of volume, however, U.S.-bound automobile exports dipped just 3.9%, indicating that the biggest Japanese exporters were absorbing the tariff costs.
“The value of automobile exports to the U.S. fell, but their volume did not drop that much,” Daiwa Institute of Research economist Koki Akimoto said. “This indicates Japanese automakers are effectively shouldering the tariff costs and not charging customers.”
So far major Japanese automakers have refrained from price increases in the U.S. to mitigate the tariff costs, except for Subaru and Mitsubishi Motors.
“They are buying time right now to see the course of Japan-U.S. trade negotiations,” Akimoto said. The absence of price hikes could affect their profits, but their fiscal base is generally solid, he added.
Graphic: This grid of charts depicts the data about Japan’s trade from 2021 to 2025
Japanese shares and the yen showed little reaction to the data.
The Japan May trade data provide one of the earliest indications of how U.S. President Donald Trump’s tariffs are impacting countries and the global economy.
China’s data showed this week that the country’s factory output grew 5.8% in May from a year earlier, the slowest pace in six months. And its outbound shipments to the U.S. plunged 34.5%, the sharpest drop since February 2020.
The impending tariffs had driven companies in Japan and other major Asian exporters to ramp up shipments earlier this year, inflating levels of U.S.-bound exports during that period.
The Japan data showed imports dropped 7.7% in May from a year earlier, compared with market forecasts for a 6.7% decrease.
As a result, Japan ran a trade deficit of 637.6 billion yen last month, compared with the forecast of a deficit of 892.9 billion yen.
DRAG ON GDP
The hit from U.S. tariffs could add pressure on Japan’s lacklustre economy. Subdued private consumption already caused the world’s fourth-largest economy to shrink in January-March, the first contraction in a year.
However, the smaller-than-expected drop in May exports suggests that Japan’s export driver has not stumbled, slightly raising the chance of the economy avoiding a contraction in the April-June quarter, Yuhi Kawano, economist at Mizuho Securities, wrote in a report.
The tariff woes, though, complicate the Bank of Japan’s task of raising still-low interest rates and reducing a balance sheet that has ballooned to roughly the size of Japan’s economy.
The BOJ kept interest rates steady on Tuesday and decided to decelerate the pace of its balance sheet drawdown next year, signalling its preference to move cautiously in removing remnants of its massive, decade-long stimulus.
According to an estimate by the Japan Research Institute, if all the threatened tariff measures against Japan were to take effect, U.S.-bound exports will fall by 20%-30%.
Some economists say those duties could shave around 1 percentage point of the nation’s gross domestic product.
($1 = 145.3200 yen)
Reporting by Makiko Yamazaki, Kantaro Komiya and Tim Kelly; Editing by Shri Navaratnam and Muralikumar Anantharaman
Source: worldautoforum.com
