Japan May chemical exports fall 6%; overall shipments hit by US tariffs

SINGAPORE (ICIS)–Japan’s chemical exports in May declined by 5.6% year on year to yen (Y) 928 billion ($6.4 billion), contributing to the first contraction in its overall shipments abroad in eight months which raises the risk of a technical recession in the world’s fourth-biggest economy.

•  Total May exports fall by 1.7% on year
•  May exports to US shrink by 11.1% on year
•  Negotiations on US tariff exemption ongoing

Exports of organic chemicals fell by 16.8% year on year to Y148.7 billion in May, while shipments of plastic products slipped by 1.6% to Y266.7 billion, preliminary data from the Ministry of Finance (MOF) showed.

By volume, May exports of plastic materials fell by 5.7% year on year to 413,270 tonnes.

Japan’s total exports for the month fell by 1.7% year on year to Y8.13 trillion, reversing the 2.0% expansion in April and marked the first contraction in eight months – highlighting the impact of US President Donald Trump’s tariffs.

With imports falling by 7.7% year on year to Y8.77 trillion in May, Japan registered a trade deficit of Y637.6 billion, extending its run of negative trade balances to two months.

Overall shipments to the US – its largest export destination – fell by 11.1% year on year to Y1.51 trillion in May.

Japan’s trade surplus with the US shrank 4.7% year on year to Y451.7 billion in May, marking the first decline in five months.

Exports of cars to the US slumped by 24.2% year on year to Y358 billion in May, while shipments of motor vehicle parts fell by 19% to Y78.5 billion.

Overall chemicals shipments to the US fell by 13% year on year to Y124.7 billion in May.

It remains uncertain whether Japan’s attempts to secure an exemption from higher US tariffs will succeed.

The 90-day suspension on US reciprocal tariffs aimed at narrowing a persistent trade gap with major trade partners are due to expire in early July for most countries, except China.

For Japan, Trump has imposed a 25% tariff on imports of cars and auto parts, alongside a baseline tax of 10% on all other Japanese goods.

In early June, the levy on steel and aluminum was doubled to 50%.

These tariffs are set to remain in place for now, as Trump and Japanese Prime Minister Shigeru Ishiba failed to reach a deal on the sidelines of the Group of Seven leaders’ summit, despite two months of bilateral negotiations.

The US’ 10% tariff across the board is slated to revert to 24% on 9 July, in line with announcements made in April.

During talks at the G7 summit in Canada on 15 June, Ishiba confirmed that while the two countries have yet to finalize a trade package, they have agreed to continue discussions at the ministerial level.

WORRIES OVER RECESSION GROWS
The decline in exports and the widening trade deficit are fueling concerns that Japan’s economy could contract again in the second quarter, potentially ushering in a technical recession, which is defined as two consecutive quarters of contraction.

Japan’s economy contracted by 0.2% on an annualized basis in the first quarter, while the country’s real GDP in price adjusted terms was flat from the previous quarter.

The Bank of Japan (BOJ) on 17 June kept its policy rate steady at 0.5% and has reduced Japanese government bond purchases from by half to Y200 billion starting in April next year.

In its policy statement, the BoJ reiterated that “it is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them”.

“The extreme level of uncertainty is holding back the BoJ from raising rates further in the near-term,” said Lee Hardman, senior currency analyst at Japan-based MUFG Research.

“A trade deal between the US and Japan in the coming months could give the BoJ more confidence to hike rates further if global trade disruption eases as well.”

The BOJ is expected to maintain a “wait-and-see stance for longer than expected”, with central bank governor Kazuo Ueda’s remarks on 17 June suggesting a reinforcement of the dovish stance, Dutch banking and financial services firm ING said in a note.

Ueda stated that inflation expectations have not yet anchored at 2% and expressed concerns about tariffs potentially affecting future wages.

Japan’s core consumer price index (CPI) in April rose by 3.5% year on year.

“Governor Ueda attributed the majority of downside risks to US trade policy. Therefore, we think that unless Japan and the US reach an agreement on tariffs, the BoJ is likely to maintain its current rate stance,” ING said.

“Unlike early expectations that Japan might make a deal with the US, negotiations have dragged on longer than expected. Thus, the BoJ’s action may be delayed to early 2026.”

($1 = Y145.1)

Focus article by Nurluqman Suratman

Thumbnail image: At a port in Tokyo, Japan, 12 May 2025. (FRANCK ROBICHON/EPA-EFE/Shutterstock)