Helped by the depreciation of the yen, Japan's exports increased for the fourth consecutive month

**Source**: Wall Street Insights

**By Zhao Ying**

Japan's exports rose 5.1% year-on-year in December, falling short of the market expectation of 6.1%. The country’s exports to the U.S. slumped sharply by 11.1%, mainly concentrated in key categories such as automobiles, auto parts and chip-making equipment, which have long been the mainstays of Japan’s exports to the U.S.

Japan's exports registered a year-on-year growth of 5.1% in December, marking the fourth consecutive month of expansion. However, the steep 11.1% drop in exports to the U.S. has cast a shadow over the full-year growth outlook.

According to data released by Japan’s Ministry of Finance on Thursday, the December export growth rate missed the market consensus of 6.1%, and also lagged behind the 6.1% growth recorded in November. In the same month, Japan posted a trade surplus of 105.7 billion yen, far below the 356.6 billion yen expected in a Reuters poll.

The sharp decline in exports to the U.S. emerged as the major drag factor. Weak shipments of automobiles, auto parts and chip-making equipment to the U.S. pulled down exports to the American market by 11.1% year-on-year, a stark contrast to the 8.8% growth seen in November. Although the U.S.-Japan trade agreement has reduced tariffs to a benchmark level of 15%, Japanese automakers still face tariff pressures.

Exports to other parts of Asia, by contrast, delivered a strong performance. Fueled by robust demand for data center-related products driven by the AI boom, Japan’s exports to Asia surged 10.2% in December, with particularly strong demand for chips and electronic devices.

## Weakening Demand in the U.S. Market

The decline in exports to the U.S. has sparked analysts’ concerns about the sustainability of future growth. Koki Akimoto, economist at Daiwa Institute of Research, noted that the temporary boost from reduced uncertainty brought by the trade agreement had largely faded by November.

He pointed out that the market will increasingly see the long-term impact of tariffs. As retailers start passing on tariff costs to consumers, the effects of Trump’s tariff measures are likely to become more fully apparent. Although the September trade agreement set a benchmark tariff rate of 15%, this rate still weighs on Japan’s exports to the U.S.

According to a report by *The Wall Street Journal*, the December drop in exports to the U.S. was mainly concentrated in key categories including automobiles, auto parts and chip-making equipment—products that have long served as the backbone of Japan’s exports to the U.S.

## Asian Demand Provides Support

Against the backdrop of a weak U.S. market, the Asian market has emerged as an important pillar for Japan’s exports. Demand for data center-related products remains strong amid the AI wave, driving a substantial increase in exports of chips and electronic devices.

Exports to Asia grew 10.2% in December, significantly outpacing the overall export growth rate. Exports to China rose 5.6%, indicating that intra-regional trade remains robust despite global economic uncertainties.

On the import side, inbound shipments climbed 5.3% year-on-year in December, exceeding the market expectation of 3.6%. For the full year of 2025, imports grew by a mere 0.3%, partly reflecting the impact of lower energy prices.

## Full-Year Trade Deficit Narrows

For the entire year of 2025, Japan’s exports grew by 3.1%, successfully avoiding a major blow from U.S. tariffs. With imports rising only 0.3%, Japan’s trade deficit narrowed by 52.9% to 2.7 trillion yen.

The moderate impact of tariffs prompted the Japanese government to raise its economic growth forecast. The government revised up its economic growth projection for the fiscal year ending in March to 1.1%, from the previous 0.7%.

Against the backdrop of easing concerns over trade frictions, the Bank of Japan (BOJ) raised its policy rate to 0.75% in December last year, a 30-year high. The market expects the BOJ to signal further interest rate hikes at its two-day policy meeting concluding on Friday, as the recent depreciation of the yen and prospects of wage growth have prompted policymakers to remain vigilant in curbing inflationary pressures.

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