Economic strain: A worker outside a store in Tokyo. Japan’s trade surplus with the United States remains a focal point in Washington’s efforts to rebalance trade. — Reuters
TOKYO: Japan’s exports fell for the first time in eight months as the US tariff campaign weighed on global trade, raising the risk of a technical recession after the economy contracted at the start of the year.
Exports measured by value dropped 1.7% in May from a year earlier led by cars, steel and mineral fuel, the Finance Ministry reported yesterday.
While the fall was smaller than the median analyst estimate of a 3.7% decline, data suggested exporters may be absorbing the tariff shock by cutting prices, as export volume rose 1.8%.
Imports declined 7.7%, with crude oil and coal seeing some of the sharpest falls, leaving Japan’s trade balance at a deficit of 637.6 billion yen.
The shortfall widened from the previous month, and marked a second consecutive month of deficits.
The drop in exports and the larger trade deficit add to concerns that Japan’s economy could shrink again in the second quarter, pushing it into a technical recession.
Domestic consumption has remained weak as inflation continues to outpace wage hikes.
“We are seeing the impact of the tariffs – that’s as expected,” said Taro Saito, the head of economic research at NLI Research Institute.
“But what’s surprising is that export volumes held up better than values, implying Japanese firms are cutting prices to remain competitive. That hits profitability, and it’s hardly good news.”
US President Donald Trump has imposed a 25% tariff on imports of cars and auto parts, along with a baseline tax of 10% on all other Japanese goods.
He also doubled a levy on steel and aluminium to 50% in early June.
The levies will stay in place for now as Trump and Japanese Prime Minister Shigeru Ishiba failed to reach a deal on the sidelines of the Group of Seven leaders’ summit after two months of bilateral negotiations.
The 10% across-the-board tariff is set to revert to 24% on July 9, as previously announced in April.
Car exports to the United States, which make up about a quarter of US-bound shipments, declined 24.7% by value in May, but only 3.9% by volume – a sign that Japanese carmakers are slashing prices to maintain shipments. — Bloomberg
