Shrank by 1.7%! Japan's exports in May fell for the first time in eight months

When the tariff stick truly falls, the vulnerability of the Japanese economy is finally exposed: exports in May fell for the first time in eight months, with a severe blow to automobile exports. Analysts point out that under the shadow of U.S. trade policies, Japan's economy faces even harsher tests ahead.

On June 18, Japan's Ministry of Trade released data showing that exports in May fell by 1.7% year-on-year, better than the 3.8% decline expected by economists, but far below the 2% increase in April.

Analysts indicate that the reversal in Japan's export growth not only casts a shadow over the country's economic outlook but also reflects the fragility of the current trade environment.

However, more concerning details are hidden in the specific market performance:

Exports to the U.S. continued to decline, with a year-on-year drop of 11.1%; exports to Japan's largest trading partner, China, also fell by 8.8%.

Even more worrying is that the automobile industry, a pillar of Japan's exports, saw global exports drop by 6.9%, with exports to the U.S. plummeting by 24.7%.

Automobile Exports Hit Hard by U.S. Tariffs

The sharp decline in Japan's automobile exports to the U.S. in May is enough to indicate the severity of the impact of U.S. automobile tariffs on Japanese exports.

Reports indicate that Japan is desperately seeking ways to exempt its automakers from the 25% specific tariffs on the automobile industry, which are heavily impacting the country's manufacturing sector.

According to customs data, in 2024, Japan exported goods worth 21 trillion yen to the U.S., with automobiles accounting for about 28% of the total.

However, U.S.-Japan tariff negotiations are currently at an impasse, with reports suggesting that Trump stated Japan has been "tough" in trade negotiations.

A previous article from Wall Street Journal noted that on June 16, Japanese Prime Minister Shigeru Ishiba had a 30-minute face-to-face conversation with U.S. President Trump at the Kananaskis resort in the Canadian Rocky Mountains.

After the meeting, Ishiba stated, "There is currently no comprehensive trade agreement," and "it's hard to say when a trade agreement might be reached." Ishiba also expressed, "I hope to protect automobiles, as they are of significant national interest," clearly placing the automobile industry at the core of Japan's economic security.

It is noteworthy that Japan's chief negotiator Ryosei Akazawa has held six rounds of negotiations with U.S. Secretary of Commerce Howard Lutnick and Treasury Secretary Scott Bessent, but no breakthroughs have been achieved.

In addition to the current 25% tariffs on automobiles and steel, Japan will also face a 24% "reciprocal tariff" rate on all other export goods starting July 9. As the July 9 deadline for tariff suspension approaches, time is running out for both the U.S. and Japan.

Economic Recovery Outlook Worrisome

Estimates from the Japan Research Institute indicate that if all threatened tariff measures are fully implemented, Japan's exports to the U.S. could decline by 20-30%. Some economists warn that these tariffs could reduce Japan's GDP by about 1 percentage point The deterioration of trade data is threatening Japan's already fragile economic recovery. In the first quarter of this year, Japan's economy has contracted for the first time in a year, with GDP declining by 0.2% quarter-on-quarter.

In its monetary policy statement on Tuesday (June 17), the Bank of Japan explicitly warned that the country's growth may "slow down" due to factors such as trade, leading to a deceleration in overseas economic activity and a decline in domestic corporate profits.

The Bank of Japan stated that against the backdrop of uncertain export prospects, it has become increasingly difficult for the central bank to raise still low interest rates and to reduce its balance sheet, which has expanded to a scale equivalent to the total size of the Japanese economy