Yamazaki Castle and Tim Kelly
Tokyo (Reuters) – Japan’s exports fell in May for the first time in eight months after a major automaker like Toyota wiped out US tariffs and failed to win trade contracts this week.
Prime Minister Isba said the group of seven summits held in Canada on Tuesday had not reached a comprehensive tariff contract with Washington due to several continued disagreements between the two countries.
Japan and the US “we investigated the possibility of trading until the very end,” he added.
Tokyo is rushing to find a way to Washington to exempt Japanese automakers from 25% automotive industry-specific tariffs. Japan also faces a 24% “mutual” tariff rate starting on July 9th, unless it can negotiate a deal with Washington.
Japan’s automobile sector accounted for approximately 28% of the total amount of 21 trillion yen ($145 billion) worth of goods exported by Asian countries to the United States last year.
Total exports in May fell 1.7% year-on-year to 8.1 trillion yen, government data showed a 3.8% decline, after a 2% rise in April.
Exports to the US fell to 11.1% from last month, with the largest monthly decline since February 2021 being reduced by a 24.7% drop in cars and a 19% drop in car components. Exports to China fell 8.8%.
However, in terms of volume, US auto exports are soaking at just 3.9%, indicating that Japan’s biggest exporters are absorbing tariff costs.
“The value of car exports to the US fell, but the amount did not drop much,” said Akiba of the Daiwa Research Economist Institute. “This shows that Japanese automakers are effectively responsible for customs costs and are not charging customers.”
So far, major Japanese automakers, with the exception of Subaru (Fujhy) and Mitsubishi Motors (MMTOY, 7211.T), have refrained from rising US prices to ease customs costs.
“They are now buying time to watch the Japan-US trade negotiation course,” Akiba said. The lack of price increases could affect their profits, but their financial foundations are generally solid, he added.
While Japanese stocks and the yen have shown little response to the data, car company stocks are under pressure this year due to concerns over the impact of tariffs.
Automakers and other carriers are the second-largest Western performers of 33 sector sub-indis this year, falling almost 12%. Only the manufacturer of precision instruments has deteriorated.
Toyota™ is the world’s top selling automaker, and estimates it is likely that it has sliced 180 billion yen from its profits in April and May alone. Honda (HMC) said it expects revenues to be hit by tariffs in the US and elsewhere this year.
Japan could trade one of the earliest indications of how President Donald Trump’s tariffs are affecting the country and the global economy.
China’s data showed this week that the country’s factory output rose 5.8% in May from the previous year, at the slowest pace in six months. And outbound shipments to the US have surpassed 34.5%, the sharpest decline since February 2020.
Impending tariffs pushed Japanese and other major Asian exporters to intensify transportation earlier this year, inflating levels of US exports during that period.
Japanese data showed imports fell 7.7% in May from the previous year, compared to a market forecast of a 6.7% decline.
As a result, Japan achieved a trade deficit of 637.6 billion yen last month, compared to forecasting a deficit of 892.9 billion yen.
The blow from US tariffs could put pressure on Japan’s unspentant economy. Restricted private consumption has already shrunk the world’s fourth largest economy from January to March. This is the first contraction in a year.
But the exceeded expected decline in May shipments suggests that Japanese export drivers are not stumbling, slightly raising the economy’s chances of avoiding contraction in the April-June quarter, Kawanojima, an economist at Mizuho Securities, wrote in a report.
However, tariffs still complicate the Bank of Japan’s mission to raise low interest rates and reduce the balance sheet that has swelled to the near-scale scale of the Japanese economy.
BOJ decided to stabilize interest rates on Tuesday, slowing down the pace of next year’s balance sheet drawdown, showing its preference to move cautiously in removing the wreckage of that massive decade of stimulus.
According to estimates from the Japanese Institute, if all threatened tariff measures against Japan are in effect, exports surrounded by the US will fall by 20% to 30%.
Some economists say these roles could shave about one percentage point of the country’s gross domestic product.
($1 = 145.3200 yen)
(Reports by Yamazaki Daikoku, Kantaro Komiya, Tim Kelly, Additional Reports by David Dolanediting Shri Navaratnam and Muralikumar Anantharaman)
