Japan’s Exports Fall as US Tariffs Stoke Recession Fears

SamanthaBusiness2025-07-171460

(Bloomberg) -- Japan’s exports fell for a second month as US President Donald Trump’s tariff campaign continued to weigh on trade, further raising the risk of a technical recession for the nation’s sputtering economy.

Most Read from Bloomberg

The Dutch Intersection Is Coming to Save Your Life
Advocates Fear US Agents Are Using ‘Wellness Checks’ on Children as a Prelude to Arrests
LA Homelessness Drops for Second Year
Manhattan, Chicago Murder Rates Drop in 2025, Officials Say

Exports edged down 0.5% in June from a year earlier, dragged down by sharp falls in the value of car and steel shipments, the Finance Ministry reported Thursday. The overall figure came in weaker than a forecast for a 0.5% increase by economists.

The drop in exports will continue to fuel concerns that Japan’s economy may shrink again in the second quarter, ushering in a technical recession that would add to the bad optics for Prime Minister Shigeru Ishiba’s embattled minority government. That outcome would also add to reluctance at the Bank of Japan to make its next rate hike move with the final level and likely impact of US tariffs still unclear.

“Given the fluctuating statements from President Trump, uncertainty is likely to persist,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who is among the economists seeing the economy sliding into technical recession last quarter. The consensus in estimates is for Japan to still eke out growth in the second quarter.

The latest report showed exports to the US sank 11.4% from a year largely in line with the previous month’s drop. The value of vehicle shipments slid 27% while steel tumbled 29%. Still, the fall in autos appeared largely down to aggressive price cutting by Japanese carmakers in response to the tariffs, as the number of passenger cars shipped actually rose 4.6% from the previous year.

“Exports to the US, particularly autos, have fallen significantly. Carmakers are cutting costs and sacrificing their profits to absorb the impact of the tariffs, which is why car exports are falling in value, while they are rising in volume,” Minami said.

The Trump administration’s threats and implementation of higher tariffs are keeping uncertainty in global commerce at elevated levels, with few bilateral deals so far completed. Negotiations between the US and many nations including Japan are dragging on as countries find it difficult to come to an agreement.

Tokyo has been hit by a 25% tariff on cars and car parts and a 50% levy on steel. Separately, in June it was also facing a 10% baseline tariff on all other shipments to the US. The across-the-board levy is set to rise to 25% on Aug. 1 barring a deal, slightly higher than the 24% originally set in April.

Story Continues

Despite seven trips to Washington by Ishiba’s trade envoy, Ryosei Akazawa, a deal is not yet in sight, raising the prospect that the duties will rise at the start of next month in line with a letter Trump sent to Ishiba earlier in July.

“I think probably we’ll live by the letter with Japan,” Trump told reporters on Wednesday.

The talks are ongoing with Akazawa speaking with Commerce Secretary Howard Lutnick by telephone Thursday morning. Still, there appears little chance of a deal being announced before Japan goes to the polls on Sunday for an election that is likely to strip Ishiba of his majority in the less powerful upper house.

Beyond the drop in exports to the US, the report showed exports to China declined 4.7% and shipments to Europe rose 3.6%. The yen averaged 144.04 against the US dollar in June, 8% stronger than a year earlier, according to the Finance Ministry. A stronger yen tends to cut the value of dollar-denominated trade figures when converted into the Japanese currency.

Japan’s trade balance returned to a surplus for the first time in three months, at ¥153.1 billion ($1 billion). Imports inched up 0.2%.

Still, looking ahead, the impact of Trump’s barrage of tariffs is likely to deepen, threatening the progress made by Tokyo toward establishing a positive price, wage and growth cycle. While the majority of economists still see growth for the economy in the last quarter, about half of surveyed analysts expect a contraction in either the second or third quarters.

“If reciprocal tariffs are raised to 25%, the impact on exports other than automobiles would also be significant, potentially putting pressure on corporate profits and weighing on winter bonuses and next year’s wage increases,” Minami said.

(Updates with more details from the report.)