Japan recorded a decline in exports in April, as shipments to the U.S. fell amid the repercussions of President Trump's tariffs, posing a new challenge for an already fragile recovery in the world's fourth-largest economy.
With levies on goods destined for the U.S. expected to deepen later this year, analysts warn that unless Tokyo convinces Washington to reverse the tariffs, headwinds could intensify.
Japan's shipments to the U.S. fell for the first time in four months.
According to figures from the Ministry of Finance, total exports increased only 2% in April compared to the previous year, matching market expectations but slowing from March's 4% gain. In contrast, shipments to the U.S., Japan's largest export market, fell 1.8% year-on-year, marking the first contraction in four months.
The decline in demand for automobiles, steel, and ships largely drove that drop. Automotive exports to the U.S. contracted by 4.8% in value, affected by a stronger yen and lower volumes of premium models.
“Up until March, automakers appeared to have brought forward deliveries to the U.S. ahead of the tariff hike. Now that the tariffs are in effect, the trend has reversed.”
Yutaro Suzuki, economist at Daiwa Securities.
While exports to the Asian region overall rose 6%, shipments to China fell 0.6% amid softer orders for vehicles and electronic components. At the same time, imports fell 2.2% in April, less severe than the 4.5% drop analysts had forecast, resulting in a trade deficit of ¥115.8 billion ($803 million), instead of the anticipated surplus of ¥227.1 billion ($1.6 billion).
Ironically, Japan's trade surplus in goods with the United States widened by 14.3% year-on-year to ¥780.6 billion ($5.4 billion), the fourth consecutive monthly increase, as U.S. purchases of Japanese products decreased. That growing bilateral surplus may attract greater scrutiny from Washington, which has long admonished Tokyo for currency and trade practices it believes give Japanese exporters an advantage.
In this context, Japan's chief trade negotiator, Ryosei Akazawa, is scheduled to hold a third round of talks in Washington later this week. However, few observers expect a breakthrough on auto tariffs, which are set to rise to 24% in July unless an agreement is reached.
The Trump administration has already imposed a 10% tariff on a wide range of imports, including Japanese steel and aluminum, and a 25% tariff on automobiles, shaking an economy that heavily relies on automobile exports to North America.
“Tariffs will exert downward pressure both directly and indirectly on exports,” said Masato Koike, senior economist at Sompo Institute Plus. He added that even if bilateral talks yield some tariff relief, Japan cannot escape the collateral effects of a weakening global economy.
Companies in Japan may withhold capital spending until the situation improves.
The administration's trade measures may also cause Japanese companies to postpone capital spending, exacerbating the pain for an economy that recorded a contraction in the January to March quarter.
“With manufacturers so deeply integrated into global supply chains, abrupt policy changes risk a ‘whiplash’ effect that could reverberate throughout the economy.”
Stefan Angrick of Moody’s Analytics.
Monetary policy is another critical point. Finance Minister Katsunobu Kato is expected to meet with his U.S. counterpart, Treasury official Scott Bessent, on the sidelines of a G7 finance ministers' meeting in Canada this week, where dollar-yen policy is likely to be a prominent topic.
Trump has accused Japan of deliberately keeping the yen weak to boost its exports, and a sustained appreciation of the yen in recent months has already affected the competitiveness of Japanese manufacturers.
The deteriorating outlook has also complicated the Bank of Japan's plans to tighten monetary policy. On May 1, the BOJ drastically downgraded its growth and inflation forecasts, citing rising U.S. tariffs as one of the main risks to its belief that a moderate recovery was underway.
Capital Economics economist Abhijit Surya now expects net exports to subtract from GDP growth in the second quarter and has pushed back his forecast for the BOJ's next rate hike from July to October.
With an unstable tariff landscape and domestic growth teetering, Japanese policymakers face tough decisions. Already, companies are feeling the pressure, with businesses stating that the U.S. tariff will erode profitability by tens of billions of dollars.
Japanese companies project that they could suffer up to $28 billion according to company guidance during the current full-year earnings period.