Japan saw a rise in machinery orders in January 2025, rising 9.8% month-on-month on a seasonally adjusted basis. This growth is an indicator of sustained demand for machinery by Japanese manufacturers. However, private sector machinery orders declined by 3.5% on a seasonally adjusted basis in the same month, excluding volatile orders for ships and electric power companies.
Japanese Exports Rise Before US Tariffs
As Japanese companies respond to global economic changes, Japanese exports rose at a faster pace in February compared to the same period last year. This increase was 11.4%, according to data published by the Japanese Ministry of Finance. Despite this increase, exports were slightly lower than expectations of a 12.6% increase.
Conversely, imports fell 0.7%, compared to expectations of a 0.8% decline. As a result of this increase in exports. Japan’s trade balance returned to positive territory. Achieving a surplus of 584.5 billion yen ($3.9 billion). This development reflects efforts by Japanese companies to increase exports ahead of the United States’ imposition of higher tariffs on certain products.
The Role of Trade in Japanese Economic Growth
Trade growth is considered a key part of the Japanese economic engine in the fourth quarter of 2024. The increase in exports and growth in overseas shipments in the first months of this year contributed to boosting economic activity. However, experts note that this growth may have been driven in part by efforts to accelerate exports ahead of the implementation of new tariffs.
Yuichi Kodama, an economist at the Meiji Yasuda Research Institute, said that part of the export growth may be attributed to the influx of increased orders before the tariffs were imposed. However, it is unclear to what extent this growth was affected by these measures, especially in light of the decline in export volume to the United States.
Japanese Export Trends by Region
Japan saw a significant increase in its shipments to the United States, rising by 10.5% in value, although the volume of these shipments declined by 3.3%. Meanwhile, exports to China increased by 14.1%, due to the impact of the Lunar New Year celebrations. Exports to Europe, on the other hand, declined by 7.7%.
Global Trade Challenges
Global trade flows are currently facing significant challenges, as ongoing escalations in US trade policy are expected to disrupt the global economy. Renewed trade wars between the United States and China, along with new tariffs imposed by US President Donald Trump on certain countries, pose a significant threat to Japan. Which relies heavily on the United States and China as its largest trading partners.
In this context, the Organization for Economic Co-operation and Development (OECD) lowered its forecast for global economic growth in 2025 to 3.1%, amid continued disruptions affecting international trade.
The Expected Impact of Tariffs on Japanese Companies
Despite Japan’s attempts to obtain tariff exemptions, no agreement has yet been reached with the Trump administration, despite meetings between the two leaders in February. Japanese Trade Minister Yuji Muto had asked senior officials in Washington to exempt Japan from tariffs. But these pleas were not seriously considered.
In this context, many Japanese companies have begun taking preemptive measures to address the expected challenges. Such as stockpiling goods in the United States in anticipation of higher tariffs. Japan’s auto sector is also facing the possibility of a new 25% car tax starting in April 2025.
Automotive and semiconductor equipment exports are on the rise.
Automobiles and semiconductor manufacturing equipment topped the list of goods that contributed to the increase in Japanese exports in February. Auto exports recorded a significant increase of 14% compared to the same period last year. Reflecting the high demand for these products in the US market.
Implications of a Depreciating Exchange Rate on Trade
Exchange rate fluctuations are a factor that pervades international trade, including the Japanese economy. If the value of the domestic currency (the yen in this case) is unexpectedly affected. This has detrimental effects on customers and imports, and consequently on the performance of companies and the economy.
One of the main effects of exchange rate fluctuations is the direct impact on the duration of supply and import flows. For example, if the value of the US dollar is fixed. The Bank of Japan becomes a foreign currency, which can demand it. Although this may increase the value of data exports. Its impact on their volume may be slow, and compliance may not be forthcoming as export volumes increase.
Future Prospects for the Impact of Tariffs
The impact of tariffs on the Japanese economy remains not entirely clear. Experts have indicated that these tariffs could have long-term negative effects on various sectors, especially the automotive and electronics industries. Although Japan seeks to diversify its trade markets. Its heavy reliance on the United States and China makes it vulnerable to fluctuations in global trade policies.
With ongoing global trade tensions. Japanese companies must adopt flexible strategies to address the challenges associated with tariffs and changing economic policies. In light of these variables. It remains important to closely monitor developments in international markets to ensure the sustainability of Japan’s economic growth in the coming period.
