Automobiles are lined up, waiting to be shipped at the export hub of Yokohama Port.
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The full impact of Trump's tariffs is hitting the Japanese economy. Preliminary economic figures for real GDP for the July-September period are negative for the first time in six quarters, down 1.8% on an annualized basis.
Getting the Japanese economy back on a growth track is the key to preventing this negative-trending gross domestic product, or GDP, from dragging on. Not only the United States' high tariffs, but also rising prices for food and other items, are weighing heavily on the economy.
Of course, companies must make efforts to increase domestic investment and wages. However, the Takaichi administration, which should support those efforts, also bears great responsibility. The question now is whether the comprehensive economic package the administration will soon put together will prove truly effective.
What the Economic Data Shows
During the July-September period, housing investment worsened due to stricter energy-saving regulations. Meanwhile, exports also fell by 1.2% due to a decline in motor vehicle exports.
On September 16, US auto tariffs were reduced from 27.5% to 15.0%. Therefore, the impact of those tariffs will likely ease in the October-December period. Nevertheless, the US import tax rate remains high compared to the previous 2.5%.
The September interim consolidated financial statements of Japan's seven motor vehicle manufacturers are telling in this regard. They show that the impact of the Trump tariffs in total reduced their profits by about ¥1.5 trillion JPY ($9.65 billion USD).
Unfortunately, the forecast for damage in the second half of fiscal year 2025 remains high. It is estimated at just over ¥1 trillion (about $6.5 billion). Moreover, the automobile industry has a wide range of economic linkages. Therefore, vigilance is called for as its difficulties have the potential to impact the economy as a whole.
Impact of US Tariffs
Recently, US President Donald Trump has exempted a wide range of agricultural and livestock products from reciprocal tariffs. The move came in response to domestic complaints about rising prices in the United States, caused by high tariffs.
Of course, if an economic downturn accompanies rising prices in the US, the blow to Japanese companies as a whole, not just the automobile industry, is sure to be greater.
Additionally, close attention must be given to the continuing sluggish Chinese economy and currency trends.
Build on the Positive Economic News
Meanwhile, in the July-September quarter, corporate capital investment in Japan increased by 1.0%.
Sectors experiencing improved performance include electronics, where demand for artificial intelligence and semiconductors is expanding, and information and communications, where there is demand for digital investment. Proactive management efforts by Japanese companies can provide impetus to the domestic economy.
With inflation worsening, the sluggish 0.1% growth of personal consumption is certainly cause for concern. Nevertheless, it is not so severe as to threaten hitting rock bottom.
Notably, the economy's supply capacity is declining due to labor shortages and other factors. Yet, measures to combat rising prices that blindly stimulate demand without targeting low-income earners and similar groups could exacerbate inflation.
Hopefully, the Takaichi administration's soon-to-be-unveiled comprehensive economic measures will tackle these issues while focusing on content, not size.
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Author: Editorial Board, The Sankei Shimbun
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