Japan’s exports rose 4.2% year-on-year in February, marking the sixth consecutive month of growth and significantly outpacing market expectations of a 1.6% increase, though the pace slowed sharply from January’s 16.8% surge. The country recorded a trade surplus of ¥57.3 billion (approximately $361 million), a stark contrast to the expected deficit of ¥483.2 billion.
By destination, exports to China—Japan’s largest trading partner—fell 10.9%, while shipments to the United States declined 8%, marking the second straight monthly drop. This reflects the combined impact of Trump-era tariffs and weaker post-Lunar New Year demand in China.
However, exports to Hong Kong surged 32.3%, and those to Western Europe rose 17.5%, partially offsetting the declines in U.S. and Chinese markets. This divergence underscores a structural shift in Japan’s export landscape, with traditional key markets under pressure while re-export hubs and European demand provide support.
Imports climbed 10.2% year-on-year in February, below the forecast of 11.5% but rebounding strongly from January’s 2.6% decline. The increase was driven by recovering domestic demand and higher energy prices.
Notably, this marked Japan’s first trade surplus in three months, reversing January’s massive ¥1.15 trillion deficit. Analysts attribute the surplus largely to base effects in export comparisons and contained import growth, rather than a fundamental improvement in trade dynamics.
Japanese exports to the U.S. had already fallen 5% year-on-year in January due to high Trump-era tariffs, with automotive and auto parts shipments hit particularly hard. The decline widened to 8% in February, signaling deepening tariff-related headwinds.
Economic uncertainty is further complicating the Bank of Japan’s policy outlook. Markets widely expect the central bank to delay any rate hike until early 2026 if U.S.-Japan tariff negotiations stall. However, if core inflation remains above 2%, a move in Q4 2025 remains possible.
Analysts warn that if all previously threatened U.S. tariffs on Japan were fully implemented, exports to the U.S. could fall by 20–30%, shaving roughly 1 percentage point off GDP. Prime Minister Shigeru Ishiba’s talks with Trump at the G7 summit failed to resolve the tariff dispute, with both sides agreeing only to continue discussions—leaving the negotiation path uncertain.
