BY MAKIKO YAMAZAKI AND TIM KELLY
TOKYO — Japan’s exports fell in May for the first time in eight months as big automakers such as Toyota absorbed the costs of sweeping tariffs imposed by the US, and the failure of the Asian nation to reach a trade deal this week will likely pile pressure on its fragile economy.
Prime Minister Shigeru Ishiba said after the Group of Seven summit in Canada on Tuesday his country had not reached a comprehensive tariff agreement with the US as some disagreements persisted between the two nations.
Japan and the US “explored the possibility of a deal until the last minute,” he added.
Tokyo is scrambling to find ways to get Washington to exempt Japan’s automakers from 25 percent automobile industry-specific tariffs, which are dealing a blow to the country’s manufacturing sector. Japan also faces a 24 percent ‘reciprocal’ tariff rate starting in July 9 unless it can negotiate a deal with Washington.
Japan’s automobile sector accounted for about 28 percent of the total 21 trillion yen ($145 billion) worth of goods the Asian country exported to the US last year.
Its total exports in May dropped 1.7 percent year-on-year by value to 8.1 trillion yen, government data showed, smaller than a median market forecast for a 3.8 percent decrease and following a 2 percent rise in April.
Exports to the US slumped 11.1 percent last month from a year earlier, dragged down by a 24.7 percent drop in automobiles and a 19 percent fall in auto components, while a stronger yen also helped reduce the value of shipments. Exports to China were down 8.8 percent.
“The value of automobile exports to the US fell, but their volume did not drop that much,” Daiwa Institute of Research economist Koki Akimoto said. “This indicates Japanese automakers are effectively shouldering the tariff costs and not charging customers.”
In terms of volume, US-bound automobile exports dipped just 3.9 percent.
So far major Japanese automakers have refrained from price increases in the US to mitigate the tariff costs, except for Subaru and Mitsubishi Motors.
“They are buying time right now to see the course of Japan-US trade negotiations,” Akimoto said. The absence of price hikes could affect their profits, but their fiscal base is generally solid, he added.
The impending tariffs had driven companies in Japan and other major Asian exporters to ramp up shipments earlier this year, inflating levels of US-bound exports during that period.
The data showed imports dropped 7.7 percent in May from a year earlier, compared with market forecasts for a 6.7 percent decrease.
As a result, Japan ran a trade deficit of 637.6 billion yen last month, compared with the forecast of a deficit of 892.9 billion yen.
The hit from US tariffs could add pressure on Japan’s lacklustre economy. Subdued private consumption already caused the world’s fourth-largest economy to shrink in January-March, the first contraction in a year.
They also complicate the Bank of Japan’s task of raising still-low interest rates and reducing a balance sheet that has ballooned to roughly the size of Japan’s economy.
The BOJ kept interest rates steady on Tuesday and decided to decelerate the pace of its balance sheet drawdown next year, signalling its preference to move cautiously in removing remnants of its massive, decade-long stimulus.
