Japan’s exports posted the biggest monthly drop in about four years in July, government data showed on Wednesday, as the impact of U.S. tariffs intensified, raising concerns about the outlook for the export-reliant economy.
Japan’s exports fell sharper by -2.6%yoy in Jul-25 (Jun-25: -0.5%yoy), recording three straight months of decline and the lowest reading since Feb-21. The weaker performance was due to dampened demand from higher US tariffs. By destination, outbound shipments to the US fell by -11.4%yoy, marking the fourth consecutive month of contraction, dragged down by weaker shipments of cars, auto parts, and semiconductors. Sales also contracted to China (-3.5%yoy), the EU (-3.4%yoy), and ASEAN (-2.9%yoy). Meanwhile, imports declined by -7.5%yoy in Jul-25 (Jun-25: +0.3%yoy), reversing the marginal rise in the previous month.
The decline was not as steep as -10.4%yoy predicted by the market consensus, reflecting signs of resilience in consumer spending supported by wage hikes, cash aid, utility subsidies, and regional funding. Imports fell from the US (-0.8%yoy), China (-3.9%yoy), ASEAN (-8.8%yoy), and the Middle East (+17.7%yoy). In contrast, purchases from the EU grew +6.6%yoy, while those from Russia jumped +90.2%yoy, fuelled by energy imports as Japan diversifies supplies despite Western sanctions. Japan recorded a trade deficit of -JPY117.6b in Jul-25 (Jun-25: +JPY152.1b; Jul-24: -JPY628.3b), reversing the surplus in the previous month. Japan’s trade outlook remains uncertain, with its key auto sector under strain as carmakers absorb higher costs by lowering prices to sustain exports.
MBSB in its research note believes the tariff burden could shift to US consumers, further dampening demand and eroding Japan’s market share. A recent deal cut the US auto tariff to 15%—still well above the original 2.5%—in return for Japan’s USD550b investment pledge in the US, which still exerts pressure on major automakers and parts suppliers.
