Japan’s Exports See Sharpest Drop in 8 Months as U.S. Shipments Slump

In May 2025, Japan's exports fell by 1.7% year-on-year, marking the steepest decline since September 2024. Although the drop was softer than the 3.8% contraction predicted by economists surveyed by Reuters, it represented a notable reversal from the 2% increase recorded in April.

U.S. and China Demand Weakens Simultaneously

According to data from Japan’s Ministry of Trade, exports to the United States—Japan’s second-largest export market—tumbled 11.1% compared to the same period last year. Exports to China, Japan’s largest trading partner, also dropped 8.8%, underscoring widespread weakness in global demand.

Automotive Sector Takes a Major Hit

Japan’s automotive industry, a critical pillar of its economy, saw exports decline 6.9% overall. Most notably, vehicle shipments to the U.S. collapsed by 24.7%, a staggering year-on-year drop.

Customs data revealed that Japanese automakers accounted for 28.3% of total exports to the U.S. in 2024. Beyond the existing 25% tariffs on automobiles and steel, Japan faces an additional 24% “reciprocal” tariff on all other goods exported to the U.S. starting July 9.

BOJ Warns of Slowing Growth Due to Trade Risks

This trade data was released just one day after the Bank of Japan (BOJ) issued a warning that the country’s economic growth was likely to “moderate,” citing global trade risks as a key concern.

“It remains extremely uncertain how trade and other policies in each jurisdiction will evolve, and how they will affect global economic activity and prices,”
— Bank of Japan (BOJ)

Tariffs Pose a Key Threat to Japan's Economic Outlook

According to Stefan Angrick, Head of Japan and Frontier Markets Economics at Moody’s Analytics, tariffs are the “main threat” to Japan’s economic outlook.

“Even if Japan and the U.S. reach an agreement that reduces some of the tariffs, a full return to pre-Trump trade conditions is unlikely,” he stated.

GDP Contracts in Q1 as Export Activity Declines

Japan’s shrinking export volume has already impacted its domestic economy. The country’s GDP fell 0.2% in the first quarter of 2025—marking the first quarterly contraction in a year.

At the same time, imports also declined by 7.7% in May, exceeding the 6.7% drop forecasted by analysts. Japan’s trade deficit stood at ¥637.6 billion, which was narrower than the ¥892.9 billion predicted.

Trade Talks with the U.S. See No Breakthrough

Trade negotiations between Japan and the U.S. remain stalled after six rounds of discussions. U.S. President Donald Trump reportedly said Japan was being “tough” in the talks.

Louis Chua, Equity Research Analyst at Julius Baer, noted that Prime Minister Shigeru Ishiba had underscored the importance of the automotive industry as a “core national interest”—hinting that Japan will likely focus on securing favorable terms for this sector in future trade talks.

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