Japan’s export total in May fell for the first time in eight months, largely impacted by the U.S. tariffs, dealing a heavy blow to the manufacturing sector, particularly the automobile industry. The ongoing lack of progress in trade negotiations between Japan and the U.S. has increased uncertainty about Japan’s economic outlook.
According to the Japanese Ministry of Finance data released on Wednesday, May’s total exports decreased by 1.7% year-on-year to 8.1 trillion yen, although it was better than the market’s expected decline of 3.8%. This marked the end of a seven-month consecutive increase since September 2024. Meanwhile, imports in the same period fell by 7.7% to 8.7726 trillion yen, primarily driven by lower energy prices, leading to a reduction in the import value of products such as crude oil and coal.
The decline in exports and persistent high imports resulted in a trade deficit of 637.6 billion yen for Japan in May, the second consecutive month of deficit.
Exports to the U.S. showed particularly weak performance, decreasing by 11.1% year-on-year, marking the largest decline since February 2021. Among them, automobile exports plummeted by 24.7%, while auto components fell by 19%, with the appreciation of the yen further lowering the export value. Exports to China also dropped by 8.8%.
However, when measured in terms of quantity, Japan’s automobile exports to the U.S. only decreased by 3.9%, indicating that most car manufacturers have chosen to absorb the cost of the highest U.S. tariff of 25% themselves, rather than passing it on to consumers. Apart from Subaru and Mitsubishi, most brands have not raised prices in the U.S. market.
The Ministry of Finance stated that while there have been no significant impacts on overall trade yet, the automotive sector has already responded by exporting lower-priced cars or offering discounts, indicating that tariff pressure has had a tangible effect on individual transactions.
Despite at least five rounds of negotiations between Japan and the U.S. on eliminating tariffs on automobiles, parts, steel, and aluminum, and considering defense procurement or rare earth cooperation as bargaining chips, there has been no major progress between the two sides.
During the Group of Seven (G7) summit in Canada on Monday (June 16), Japanese Prime Minister Shizo Abe held a bilateral meeting with U.S. President Trump for about 30 minutes, but consensus was not reached on a comprehensive tariff agreement, and disagreements on issues such as automotive tax rates remain unresolved.
The automotive industry is a key pillar of Japan’s exports to the U.S., with the total exports to the U.S. in 2024 reaching around 21 trillion yen, among which the automotive industry accounts for approximately 28%. If Japan and the U.S. fail to reach an agreement on tariffs, the Japanese automotive industry may face more severe structural challenges in the medium term, thereby dragging down overall economic performance.
Despite the unfavorable recent trade data, the market reaction has been relatively subdued. Both the Nikkei 225 index and the yen exchange rate have not shown significant fluctuations, indicating that investors remain cautious and adopt a wait-and-see attitude.