Japan's Exports Drop as US Tariffs Hit Automobiles, Pressure Set to Intensify

• Japan's exports fell for a second straight month, dropping 0.5% year-on-year, as sweeping U.S. tariffs took a toll on the country's manufacturers, with its fragile economy exposed to greater risks from the global trade war in the coming months. Japan failed to clinch a deal with the U.S. before the July 9, 2025, expiration of the temporary pause on the country-specific tariffs after it focused on eliminating the existing sectoral 25% tariffs on automobiles, a mainstay of the export-reliant economy.
• "The tariff impact is likely to intensify in coming months, when the tariff rate is finalised and Japanese companies begin to fully pass on costs to consumers in the U.S., which would hamper the competitiveness of Japanese products there," Daiwa Institute of Research economist Koki Akimoto said.
• Nonetheless, the volume of automobile shipments rose 3.4%, indicating Japanese automakers are cutting prices on exported cars and absorbing tariff costs to stay competitive. "Japanese automakers have so far kept production levels by sacrificing margins, so the tariff impact on their production activities has been limited," Koya Miyamae, senior economist at SMBC Nikko Securities, said. However, Daiwa's Akimoto noted that Japanese companies would be forced to raise prices eventually, as trade negotiations drag on and the yen stays relatively strong.
• The U.S. tariffs are adding to pressure on the Japanese economy, which is struggling due to lacklustre domestic consumption. Japan's economy shrank in the first quarter as rising living costs hurt demand. Further, prolonged uncertainties over the impact of the tariffs and the course of trade negotiations will likely force the Bank of Japan to keep focusing on downside risks to the economy and to put rate hikes on hold for the time being, analysts say.

(Source: Reuters)