Japan’s exports fall for second straight month with no U.S. trade deal in sight, raising recession fears

Japan’s exports in June contracted 0.5% year over year, extending the 1.7% drop seen in May as deliveries continued to decline for the second straight month.

The decrease in exports was a reversal of the 0.5% rise expected by economists polled by Reuters, and comes amid a lack of a breakthrough in trade talks with the U.S.

Exports to China, Japan’s largest trading partner, were down 4.7%, while shipments to the U.S. declined by 11.4% year over year, deepening from the 11% fall in May.

The data comes as Japan now faces a 25% “reciprocal tariff” from the U.S. that will take effect on August 1, one percentage point higher than the 24% announced on “Liberation Day.”

Earlier on Wednesday, U.S. President Donald Trump reiterated that a 25% tariff would apply to Japanese imports, saying he does not expect to reach a broader deal with the country.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, noted that the 11.4% decline in exports to the U.S. was the largest since the start of the Covid-19 pandemic in 2020.

Exports — including services — made up almost 22% of Japan’s GDP in 2023, according to the latest data from the World Bank.

Since April 3, Japanese automobiles imported into the U.S. have also faced a 25% tariff. Auto exports to the U.S. are a cornerstone of Japan’s economy, making up 28.3% of all shipments in 2024, according to customs data.

However, data from the trade ministry showed that exports of automobiles, which include cars, buses and trucks, to the U.S. fell 26.7% in June, extending from May’s 24.7% plunge.

Thieliant said that carmakers seem to be doubling down on price cuts to retain market share, pointing out that while car export volumes to the U.S. rose by 4.6% year over year, car export values slumped by 25.3% year-on-year.

“Some of that simply reflects the strengthening of the yen as U.S.-bound exports are typically invoiced in dollars. But most of it is due to price cuts, with carmakers seemingly absorbing nearly all of the 25% U.S. tariff imposed by Trump in April in their margins,” he highlighted.

The additional tariffs could tip the export-dependent Japanese economy into a recession, analysts previously told CNBC.

Japan’s economy contracted in the first quarter of the year compared to the previous quarter due to weakening exports, and another such contraction will see it meet the definition of a technical recession.

On July 8, Japan’s top negotiator Ryosei Akazawa reportedly said that any deal must include auto concessions for the country.

He also brushed aside any deadlines, including the U.S.’ August 1 deadline, adding that he would not sacrifice Japan’s agriculture sector for the sake of an early agreement.

U.S. President Donald Trump had taken aim at the country’s rice sector on July 1, posting on Truth Social that Japan “won’t take our RICE” despite a rice shortage in the country.

Japan had imported just over 350,000 tons of rice in 2024 from the U.S., with the U.S. being the largest exporter of rice to Japan in that year.

Takeshi Niinami, senior economic advisor to Japan’s prime minister, said that Japan may have taken a too hardline stance in tariff negotiations with U.S. President Donald Trump.

“I think from the beginning, Japan didn’t accept the 10% [tariffs], even 10%. I think Japan should have analyzed that the 10% is a must,” he said on CNBC’s “Squawk Box Asia.”

Niinami, who is also the CEO of Japanese drinks manufacturer Suntory Holdings, was referring to the baseline 10% reciprocal tariff that the Trump administration had imposed globally, even on countries that have a trade deficit with the U.S.

“If that had happened, we would not have been discussing the 25% [reciprocal tariffs].”

Japanese officials, including top negotiator Ryosei Akazawa, had been pushing for the removal of tariffs on Japanese imports to the U.S since April.

However, Niinami did not think that Japan should simply accept the 25% tariff wholesale. “We should give the posture that Japan is going to open the country, like non-tariff barriers on the safety standards of automobiles [and] we should talk about how to agree on agricultural products to be imported more.”

He did acknowledge, though, that the decision to open up the country to more agricultural products came at a contentious time.

Japan’s Upper House elections are due to take place on Sunday, and a Nikkei poll indicated that Prime Minister Shigeru Ishiba’s governing coalition is at risk of losing its Upper House majority.

The decision to open up agricultural imports may alienate farmers, traditionally seen as a support base for the ruling Liberal Democratic Party.

“At least before the election day of July 20, Japan must show willingness and the posture to settle and agree with the United States,” Niinami said.