Japan's Exports Rise as Uncertainty Looms Over US Trade Policy

Japan's exports rose for the third consecutive month in December, driven by a weaker yen and anticipation of potential US trade tariffs, according to a Bloomberg report. However, the growth trend is weakening as businesses await clarity on President Donald Trump's trade policies in his second term.

The Ministry of Finance reported on Thursday that exports, measured in value, increased by 2.8% year-on-year, exceeding the consensus estimate of a 2.4% increase. However, shipments fell in terms of volume. Imports increased by 1.8%, led by calculation machinery and related goods, but this was weaker than expectations of a 3.2% increase.

The yen averaged 152.48 per dollar in December, 3.8% weaker than a year earlier, the report said. A weaker yen typically benefits exporters but makes imports of energy and food more expensive.

"Exports have been lacking strength," said Yuichi Kodama, economist at Meiji Yasuda Research Institute, to Bloombergs. "The weaker yen is pushing up the value of exports, but the volume is falling. Companies are waiting to see what the Trump administration's tariff policy will be. There is of course a risk that exports will decline if tariffs are actually imposed."

By region, shipments to the US fell 2.1%, while those to China declined 3%. Exports to Europe rose 0.5%, and increased by 5.8% to Asia.

The data comes a day before the Bank of Japan's latest policy decision, where the central bank is expected to raise rates to 0.5%. The weakening yen and increased import volume both suggest that inflationary pressures will remain, supporting the BOJ's case for a rate hike.

Analysts at SMBC Nikko Securities Inc. wrote in a note that exports likely received a boost from last-minute demand anticipating potential new tariffs under the Trump administration.

Following his inauguration, Trump announced he is considering imposing tariffs of up to 25% on goods from Mexico and Canada by February 1st. He could also impose 10% tariffs on goods from China on the same date.

Japanese officials have stated they are attempting to analyze Trump's trade policies and their potential impact on Japanese companies. Atsushi Mimura, Japan's chief currency official, said on Tuesday that Japan's response to any US tariffs will depend on the specific targets, timing, and other details of the measures.

Thursday's data also revealed that Japan's trade balance unexpectedly swung to a positive reading for the first time in six months, with a surplus of ¥130.9 billion ($837 million). Japan's trade surplus against the US was ¥1 trillion.

In 2024, Japan had an overall trade deficit of ¥5.3 trillion, but it had a surplus of ¥8.6 trillion with the US, which could potentially be a source of tension with Trump, who has expressed concerns about Washington's trade deficits with other nations.

Takeshi Iwaya, Japan's Foreign Minister, who attended Trump's inauguration ceremony in Washington, said he did not discuss tariffs with Secretary of State Marco Rubio in their first meeting. In December, Iwaya stated that Tokyo intends to resume trade talks with Trump, with the elimination of tariffs on cars and auto parts being a key item on the agenda. Prime Minister Shigeru Ishiba is expected to meet with Trump next month, and the manner in which he addresses trade issues will be closely observed.