Japan's exports slow as U.S. tariffs bite, risking a recession
Growth in Japan's exports slowed as the United States ramped up its tariff measures, highlighting the risks the country faces after its economy already contracted before the levies began hitting in earnest.
Exports measured by value gained 2% in April from a year earlier, slowing from March's 4% as cars and steel dragged on shipments, the Finance Ministry reported Wednesday. Exports were just below the median analyst estimate, while imports fell 2.2% led by coal and crude oil.
Japan's trade balance swung into a deficit of ¥115.8 billion ($797 million) after two months in the black.
The slowdown in exports casts a cloud over Japan's economy at a juncture when authorities are trying to achieve a positive economic cycle fed by rising prices and wages. After last quarter's contraction, U.S. President Donald Trump's administration's tariff campaign puts Japan at risk of a technical recession if trade continues to drag on the economy when domestic consumption lacks momentum.
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"We are already seeing the impact of tariffs,' said Yuichi Kodama, economist at Meiji Yasuda Research Institute. "I think it will become more pronounced in the future, and downward pressure on trade will intensify.'
By region, Japan's exports to the U.S. declined 1.8%, led by cars and construction machinery, while exports to China and Europe fell 0.6% and 5.2%, respectively. The yen averaged ¥147.7 against the dollar in April, 2.6% stronger than a year earlier, which weighed on the readings for yen-denominated exports and imports, according to the Finance Ministry.
After launching his tariff campaign in March with 25% duties on steel and aluminum, Trump added a tax on car imports at the same rate from April, along with a baseline tax of 10% on all other Japanese goods that will rise to 24% this summer barring a trade deal.
Car exports to the U.S., which accounted for about 29% of the total, declined 4.8% last month. Exports of steel, which made up 1% of the total, sank 29%. The hit to the car industry is likely to remain a major blow to Japan, with Toyota and Honda already projecting profit hits in the billions of dollars. That bodes ill for their ability to keep raising wages at home at a time when the Bank of Japan sees strong wage momentum as a key factor that would allow it to roll back its monetary stimulus.
The yen, which has risen 9.1% against the dollar from the start of the year, is a key factor for how trade impacts Japan's economy. A stronger currency cools inflation via cheaper imports, while cutting the value of exporters' overseas earnings brought back onshore. Finance Minister Katsunobu Kato plans to discuss foreign exchange with U.S. Treasury Secretary Scott Bessent during the Group of Seven meetings in Canada this week.
In all, Japan's trade surplus with the U.S. stood at ¥780.6 billion in April, narrowing from ¥846.9 billion in March. The persistent gap has made Japan a target in Trump's attempts to rebalance U.S. trade, but Prime Minister Shigeru Ishiba has signaled that Japan is not in a rush to make a deal if it means that its national interests may be hurt. U.S. Commerce Secretary Howard Lutnick has also said trade talks with Japan will take time.
Following staff-level talks this week, Japan's top trade negotiator Ryosei Akazawa is set to fly to Washington again for discussions at the end of the week, according to local media.
Ishiba continues to seek an exemption from all additional U.S. tariffs and has said he won't sacrifice Japan's agricultural sector in order to protect its auto industry. Tariffs are set to be a key topic ahead a national election early this summer, poised to take place after the so-called reciprocal tariffs are set to go back to 24% in early July.
"It would be ideal if domestic demand could offset the decline in external demand, but that would be difficult because real wages continue to fall, keeping a lid on consumption,' said Meiji Yasuda's Kodama. "There is a possibility that the economy may fall into a technical recession.'
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