Japan's export growth showed signs of deceleration in February, primarily hindered by two major factors: direct pressure from US tariff policies on Japanese automobile exports and a seasonal demand downturn due to the Chinese Lunar New Year holiday. Data released by Japan's Ministry of Finance on Wednesday revealed that total exports increased by only 4.2% year-on-year. While this marked a slowdown from the significantly higher growth rate of the previous month, it still surpassed the median market analyst forecast of 1.9%. Imports, meanwhile, grew by 10.2% year-on-year, slightly below market expectations, resulting in Japan's trade balance shifting to a surplus. The seasonally unadjusted trade surplus amounted to 57.3 billion yen. The Lunar New Year holiday in February contributed to a 10.9% year-on-year decline in Japan's exports to China. Specifically, exports of semiconductor manufacturing equipment, plastics, and scientific optical instruments all experienced double-digit declines, acting as the main drivers behind the overall drop in exports to China. However, it is noteworthy that shipments of semiconductors and other electronic components continued to grow, bolstered by robust demand related to artificial intelligence. Shinichiro Kobayashi, Chief Economist at Mitsubishi UFJ Research and Consulting, analyzed that the decline in exports to China was largely influenced by the Lunar New Year holiday. He further emphasized that despite signs of a localized slowdown in the US economy, the fundamental global economic outlook remains solid, supporting continued overall export growth for Japan. Regionally, exports to the European Union were a bright spot, surging 14% year-on-year. Exports of automobiles, along with machinery and equipment for construction and mining, saw particularly strong growth, serving as the core drivers for the increase in exports to the EU. These figures were released as the global economy faces ripple effects from the situation in the Middle East. The conflict, which began in late February, continues to escalate, with rising oil prices further heightening global inflation risks. Economic data released earlier this month indicated that, although a weaker yen provides some support for exporters, the net contribution of exports to Japan's economy is still projected to be zero by the end of 2025. Economist Shinichiro Kobayashi of Mitsubishi UFJ expressed significant concern, stating, "Uncertainty surrounding the Middle East situation casts a shadow over the outlook. The conflict could disrupt key shipping routes, and businesses must be particularly vigilant about securing stable energy supplies." Japanese companies continue to grapple with the impact of US tariff policies, while both nations are currently implementing a trade agreement reached last year that caps US import tariffs on Japanese goods at 15%. In exchange, Japan has committed to expanding its investment in the United States to aid the revitalization of American manufacturing. Specifically, in February, Japan's exports to the US fell by 8% year-on-year, primarily dragged down by automobile exports, which plummeted 14.8% by value. Notably, however, the decline in automobile export volumes was significantly smaller, a discrepancy suggesting that Japanese manufacturers are employing proactive price-cutting strategies to defend their market share in the US amid tariff pressures. As a core pillar of a $550 billion investment plan in the US, Tokyo officially launched the first tranche of investments last month. This plan explicitly commits to injecting a total of up to $36 billion into the US oil, natural gas, and critical minerals sectors, representing a key tangible measure under the bilateral trade agreement. Ahead of Japanese Prime Minister's scheduled meeting with the US President in Washington this week, officials from both countries continue to negotiate the details of the investments. Sources indicate that a second round of investments may focus on next-generation nuclear power technology. According to the latest statistics from Japan's Ministry of Finance, the average exchange rate in February was 155.65 yen to the US dollar, representing a 0.7% depreciation compared to the same period last year and continuing the recent trend of a weak yen. Shinichiro Kobayashi analyzed this, noting, "The persistent weakness of the yen will inevitably increase the cost of energy imports like oil, which will directly intensify pressure for a widening trade deficit."
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