Japan’s export sector experienced a downturn in May, with shipments falling by 1.7% compared to the same month last year. This represents the steepest decline since September 2024, showing the growing challenges facing the world’s third-largest economy amid persistent global trade uncertainties.
Although the decrease was less severe than the 3.8% drop forecast by economists surveyed by Reuters, it reversed the modest 2% growth seen in April. Data from Japan’s Ministry of Finance revealed a marked weakening in demand from key markets, especially the United States and China.
Exports to the U.S. plunged by 11.1% year on year, while shipments to China, Japan’s largest trading partner, declined by 8.8%. The automotive industry, a cornerstone of Japan’s export economy, was particularly affected. Overall vehicle exports dropped by 6.9%, but exports of cars to the U.S. market fell dramatically by nearly a quarter (24.7%) compared to the previous year.
Japanese car manufacturers accounted for 28.3% of total exports to the U.S. in 2024, according to customs data. However, the imposition of a 25% tariff on Japanese automobiles has significantly dampened demand. Steel exports also face the same 25% levy, and from July 9, Japan will be subject to a 24% reciprocal tariff on a wide range of other exports to the U.S., further escalating trade tensions.
These developments occur against a backdrop of strained trade relations between Tokyo and Washington. Recent negotiations involving Japan’s chief trade negotiator Ryosei Akazawa, U.S. Commerce Secretary Howard Lutnick, and Treasury Secretary Scott Bessent have yet to yield a breakthrough. U.S. President Donald Trump reportedly described Japan as being “tough” in these talks.
The Bank of Japan (BOJ) recently issued a cautious economic outlook in its monetary policy statement, indicating that growth is likely to “moderate” in the near term. The BOJ attributed this to factors including trade uncertainties, which are expected to slow global economic activity and reduce corporate profits within Japan.
“It is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them,” the BOJ added, emphasising the precarious nature of the current environment.
Japan’s economy has already shown signs of strain, with GDP contracting by 0.2% in the first quarter of 2025 compared to the previous quarter—the first quarterly contraction in a year. Imports also fell sharply, declining 7.7% in May against expectations of a 6.7% drop, displaying subdued domestic demand and weaker global supply chains.
Despite the export slump, Japan’s trade deficit narrowed to 637.6 billion yen in May, better than the anticipated 892.9 billion yen deficit. Analysts suggest this improvement partly reflects lower import costs amid fluctuating global commodity prices.
Japan’s export difficulties mirror global trends, as supply chain disruptions, geopolitical tensions, and protectionist policies continue to unsettle international trade. The U.S.-China trade war, volatile energy prices, and lingering effects of the COVID-19 pandemic have all contributed to an unpredictable trading environment.
For Japan, a country heavily reliant on exports, particularly in automobiles, electronics, and machinery, these challenges threaten to slow economic recovery and complicate efforts to sustain growth.