Yen depreciation boosts Japan's exports, marking fourth consecutive month of growth.
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Japan’s exports in December increased by 5.1% year-on-year, achieving growth for the fourth consecutive month. However, exports to the US fell sharply by 11.1%, casting a shadow over the outlook for full-year growth.
According to data released by Japan’s Ministry of Finance on Thursday, the export growth in December was below the market expectation of 6.1% and also lower than the 6.1% growth in November. Japan recorded a trade surplus of 105.7 billion yen for the month, far below the 356.6 billion yen expected in a Reuters survey.
The sharp decline in exports to the US was the main drag. Weak exports of automobiles, auto parts, and chip manufacturing equipment to the US led to an 11.1% year-on-year drop in shipments to the US market, in stark contrast to the 8.8% growth in November. Although the trade agreement between Japan and the US reduced tariffs to a benchmark level of 15%, Japanese carmakers still face tariff pressure.
Exports to other Asian regions performed strongly. Driven by a boom in artificial intelligence, demand related to data centers supported a 10.2% jump in exports to Asia in December, with particularly strong demand for chips and electronic devices.
Weakening Demand in the US Market
The decline in exports to the US has raised analysts’ concerns about the sustainability of future growth. Koki Akimoto, economist at Daiwa Institute of Research, said the temporary boost from reduced uncertainty brought by the trade deal had largely faded by November.
He pointed out that the market will increasingly see the long-term impact of tariffs. As retailers begin to pass on tariff costs to consumers, the effects of the Trump tariffs may become more apparent. Although the trade deal in September set the benchmark tariff at 15%, this rate still puts pressure on Japanese exports to the US.
According to the Wall Street Journal, the decline in December exports to the US was mainly concentrated in key categories such as automobiles, auto parts, and chip manufacturing equipment. These products had previously been the backbone of Japan’s exports to the US.
Asian Demand Provides Support
Amid a weak US market, the Asian market has become an important support for Japanese exports. With the AI boom driving strong demand for data centers, exports of chips and electronic devices surged.
Exports to Asia grew by 10.2% in December, significantly higher than overall export growth. Exports to China grew by 5.6%, indicating that despite global economic uncertainty, intra-regional trade remains active.
On the import side, imports in December rose 5.3% year-on-year, surpassing the market expectation of 3.6%. For the full year, imports in 2025 increased by only 0.3%, partly reflecting the impact of lower energy prices.
Full-Year Trade Deficit Narrows
For the whole of 2025, Japan’s exports grew by 3.1%, successfully avoiding the major shock from US tariffs. Imports grew only 0.3%, narrowing Japan’s trade deficit 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 raised its GDP growth forecast for the fiscal year ending this March from 0.7% to 1.1%.
With concerns over trade friction easing, the Bank of Japan raised its policy rate to 0.75% last December, the highest in 30 years. The market expects the Bank of Japan to signal further rate hikes at the two-day policy meeting ending Friday, as recent yen depreciation and wage growth prospects prompt policymakers to stay alert to inflationary pressures.
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