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Japan’s exports plunged 2.6% year over year in July, their steepest drop since February 2021, as shipments to its two largest markets slipped.
The fall was sharper than the 2.1% contraction expected by economists polled by Reuters and compared to the 0.5% drop seen in June.
Imports to the world’s fourth-largest economy sank 7.5%, compared to the 10.4% fall expected by the Reuters poll.
Exports to the U.S. also continued to fall, dropping 10.1% in July and slightly softer than June’s decline of 11.4%. The U.S. is the largest market for Japanese exports.
Shipments to mainland China — Japan’s second largest export market — declined 3.5% compared to the same month last year, but shipments to Hong Kong spiked 17.7%.
The Nikkei 225 declined 0.9% after the release, while the yen weakened marginally to trade at 147.79.
The trade readings come after Japan reported its second-quarter GDP figures, which saw the country beat expectations as net exports drove growth.
Japan’s economy grew by 0.3% quarter over quarter and 1.2% on a yearly basis in the second quarter as exports remained resilient, even as imports fell.
Hirofumi Suzuki, Chief FX Strategist at Sumitomo Mitsui Banking Corporation, told CNBC after the GDP release that while exports have been volatile, there was a higher level of automobile shipments in April to June.
This may be due to an increase in catch-up shipments after production recovered from an accident at an automobile parts manufacturer in March, Suzuki said.
While Suzuki did not name the company, Reuters reported that there was an explosion on March 7 at a plant in central Japan that supplies auto parts to the world’s largest carmaker, Toyota Motor.
Tariffs on automobiles were cut from 25% to 15% as part of Japan’s trade deal. Autos are one of Japan’s largest exports, and make up its largest export to the U.S. in 2024.
The value of auto exports — which includes cars, buses and trucks — to the U.S. plunged 28.4% year over year in July, a steeper fall compared to the 26.7% decline in June.
Japan reached a deal with Washington on July 22 that saw its so-called “reciprocal tariff” lowered to 15% from the 25% threatened by U.S. President Donald Trump earlier that month.
While the effects of the 15% tariffs will not show up until the August data, analysts have warned about their impact on the Japanese economy.
Senior economist Masato Koike at Sompo Institute Plus said in an Aug 14 note that there was a possibility that Japan could enter a recession, depending on the magnitude of the impact of tariffs.