Japan’s Exports Rise Amid Tariff Concerns

Japan's exports increased for the third consecutive month in December, rising 2.8% year-on-year, surpassing the forecasted 2.3% growth. This follows a 3.8% gain in November and reflects a push by companies to expedite shipments ahead of potential U.S. tariffs under President Donald Trump’s protectionist trade policies. Trump has signaled intentions to impose tariffs on imports from key trading partners like China, Canada, and Mexico, raising concerns over global trade disruptions.

Despite overall export growth, shipments to China, Japan's largest trading partner, fell 3% in December, while exports to the U.S. dropped 2.1%. Imports rose 1.8% year-on-year, under market expectations of 2.6%, after a 3.8% decline in November. This resulted in a trade surplus of 130.9 billion yen ($836.8 million), defying predictions of a 53 billion yen deficit.

For 2024, Japan recorded a trade deficit of 5.3 trillion yen, marking four consecutive years of deficits but significantly improving from the previous year’s 9.52 trillion yen shortfall.

Emerging wage growth and its potential boost to domestic consumption strengthen the argument for a Bank of Japan interest rate hike. However, uncertainties around external demand persist, with Trump's tariff plans and concerns over China’s economic recovery posing significant risks.

A Japan External Trade Organization survey revealed that Japanese companies with U.S. operations are preparing for possible tariff increases by enhancing local manufacturing, sourcing, and considering product price adjustments.

As global trade tensions rise, Japan's economic prospects remain intricately tied to U.S. trade policies and China's recovery trajectory, presenting challenges and opportunities for future growth.