^{Photo: Bloomberg.com}

Export growth falls short of expectations

Japan’s export growth lost momentum in December, rising 5.1% year on year and falling short of market expectations for a 6.1% increase. The weaker-than-expected performance highlights persistent fragility in global trade demand, particularly from the United States, even as shipments to parts of Asia showed solid gains.

The December figure marked a slowdown from November and underscored the uneven nature of Japan’s export recovery as the year came to a close.

U.S. demand remains a key drag

Exports to the United States fell sharply by 11.1% in December, reversing the 8.8% increase recorded in November. That November rise had been the first expansion in shipments to the U.S. since March, making December’s renewed decline particularly notable.

The earlier rebound followed the announcement of a U.S.–Japan trade agreement that reduced tariffs to 15%, which temporarily boosted shipments toward the end of 2025. However, lingering concerns over U.S. trade policy, higher import levies, and softer consumer demand appear to have weighed on export volumes once again.

Over the full year, exports to the U.S. declined 4.1%, confirming that America remained a major weak spot for Japan’s external trade.

Asia provides partial support

In contrast, exports to Asia delivered more encouraging signals. Shipments to mainland China, Japan’s largest trading partner, rose 5.6% in December, while exports to Hong Kong surged 31.1% compared to a year earlier. Exports to the broader Asia region climbed 10.2%, reflecting steady demand for electronics, machinery, and intermediate goods.

For the full year, exports to Hong Kong and Taiwan jumped 17.8% and 15.1% respectively, helping to offset declines in shipments to both the U.S. and China. Despite this, annual exports to mainland China still edged down 0.4%, highlighting ongoing structural and geopolitical challenges in the relationship.

Imports jump as domestic demand improves

Japan’s imports rose 5.1% year on year in December, accelerating sharply from a 1.3% increase in November and beating expectations for a 3.6% rise. The stronger import growth suggests improving domestic demand and higher energy and raw material purchases, aided by the weak yen.

The rebound in imports narrowed Japan’s trade balance and reflects rising costs for businesses reliant on overseas inputs.

Full-year picture shows slower growth

For the whole of 2025, Japan’s exports increased 3.1%, roughly half the pace recorded in 2024, when exports grew 6.2%. The slower annual growth reflects weaker shipments to Japan’s two largest trading partners and the fading impact of post-pandemic demand normalization.

According to analysts, part of the export resilience seen earlier in the year came from front-loaded shipments to the U.S. ahead of potential tariff hikes, strong global demand linked to artificial intelligence infrastructure, and the continued depreciation of the yen, which made Japanese goods more competitive overseas.

Rising risks cloud the outlook

Despite holding up for now, the outlook for Japan’s exports remains uncertain. Analysts warn that higher U.S. import tariffs, intensifying global competition, and slowing industrial production could weigh further on export volumes in the coming months. Trade risks linked to China are also growing.

Tensions between Tokyo and Beijing have intensified since November following remarks by Prime Minister Sanae Takaichi regarding potential military intervention if China attempted to seize Taiwan by force. China has since suspended seafood imports from Japan and announced new restrictions on exports of dual-use goods, adding pressure to bilateral trade flows.

Political uncertainty adds another layer

The trade data arrives as Japan prepares for snap elections on Feb. 8, after Prime Minister Takaichi called for the Lower House to be dissolved. A strong election result would allow her to advance fiscal and economic policies with minimal resistance, including measures that could keep the yen weak to support exporters.

Since the election announcement, Japanese financial markets have reacted positively, with equities mostly rising and the yen remaining under pressure in what investors have dubbed the “Takaichi trade.”

As Japan heads into a politically and economically sensitive period, December’s export figures underscore both the resilience and the vulnerabilities facing the country’s trade-driven economy.

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