Japan is not the UK of the East

The Impact of Tariffs on Japan’s Economy

By Takuya Nishimura, APP Senior Fellow, Former Editorial Writer for The Hokkaido Shimbun

The views expressed by the author are his own and are not associated with The Hokkaido Shimbun
You can find his blog, J Update here.
May 12, 2025. Special to Asia Policy Point

As U.S. President Donald Trump enters bilateral tariff negotiations with several countries, his tariffs have already begun to negatively affect Japan’s economy. Some business sectors had already realized profit and growth losses from the slowdown of Japan’s economy. The Shigeru Ishiba administration believes that, as a close ally of the United States, it can negotiate some exceptions to the punishing tariffs. This is far from certain.
 
The Bank of Japan has revised its estimate of the growth of Japan’s economy in FY2025. “Japan’s economic growth is likely to moderate, as trade and other policies in each jurisdiction [other countries] lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors,” says the bank’s Outlook for Economic Activity and Prices in April. The outlook identifies Japan’s evolving trade situation and developments in import prices as risks to economic activity.
 
Toyota Motor Corporation published its FY2025 consolidated financial results on May 8. According to its estimation, net income from April 2025 to March 2026 will decline by 3.1 trillion yen ($21 billion), or 34.9 percent. Toyota has already taken into account declines of 180 billion yen in April and May 2025 that have resulted from Trump’s tariff policy, as well as an annual 745 billion yen reduction caused by the fluctuation of foreign exchange rates.
 
Nippon Steel estimates its net income between April 2025 and March 2026 will be 200 billion yen, a 42.9 percent decline from the previous fiscal year. “The U.S. administration’s tariff policy is becoming increasingly uncertain day by day and is beginning to have a major impact on the global economy. As a result, the trend toward favoring domestic production is accelerating, and it is expected to have a significant impact on the domestic and overseas steel industry, including an indirect impact,” according to Nippon Steel’s consolidated financial results for FY2024.
 
The Trump administration imposed a 25 percent tariff on foreign steel and aluminum in March. In April, it imposed another 25 percent tariff on imported cars. The Shigeru Ishiba administration quickly sought to negotiate reductions in these tariffs. Japan’s top negotiator, Ryosei Akazawa, announced that the talks were focused on the expansion of bilateral trade, non-tariff barriers, and economic security.
 
While Japan has been spending time trying to set the agenda, the United Kingdom reached a deal with the U.S. to reduce tariffs on UK products. The tariff on 100,000 UK cars will be reduced from 27.5 percent to 10 percent, and steel and aluminum imports will be tariff-free. On Monday, May 12, the U.S. agreed with China to cut the 145 percent tariff on Chinese goods to 30 percent for 90 days.
 
The Trump administration clearly is seeking deals with countries, regardless of whether they are allies or foes. Japan was stunned by the indifference of Trump administration to their alliance and shared values of democracy and free markets, as seen in the U.S. intent to exclude the new tariffs on automobiles, steel, and aluminum from negotiations with Japan.
 
Trump’s tariffs caused the Japanese yen to appreciate against the U.S. dollar. The appreciation will itself raise the cost of Japan’s goods sold in the U.S., although the precise change in the exchange rate has varied. The yen rose from 155 yen per dollar at the time of Trump’s inauguration in January to a high of 140 yen in April. As of the close of business Monday, May 12, in the U.S., the rate was approximately 148 yen to the dollar.
 
Despite pressure from the Trump Administration to ease monetary policy, the Federal Open Market Committee of the Federal Reserve Board made no change to the current federal funds rate of 4¼ to 4½ percent at its May meeting, which concluded on May 7.  As long as U.S. monetary policy does not reduce the interest gap between the U.S. and Japan, there should be little impact on the yen. 
 
However, the announcement of even a 90-day deal between the U.S. and China devalued the yen. At the close of the market on Friday, the Japanese yen was at approximately 145 yen to the dollar. At the U.S. close on Monday, it was approximately 148 yen to the dollar. 
 
A cheap yen hikes the price of imported goods in Japan. According to the Monthly Labour Survey in March by the Ministry of Health, Labour and Welfare, the real wage of workers in Japan has dropped for three consecutive months. Workers’ wages have still not caught up with price inflation.
 
To minimize the negative impact of Trump’s tariffs in the coming Upper House election, the Ishiba administration plans to deliver an economic stimulus package. However, the leaders of the Liberal Democratic Party are reluctant to include a consumption tax cut or a cash distribution in the party’s campaign platform.
 
If Japan falls behind other countries in finishing bilateral tariff deals, the Ishiba administration will be unable to reverse the downward trend in its approval rating. The latest poll of NHK showed a 33 percent approval rating, down 2 percentage points from the previous month. The Trump administration's tough line toward Japan is having a negative effect on Japanese politics.

Fruitless travels

Ishiba Reports on his U.S. Trip 

By Takuya Nishimura, APP Senior Fellow, Former Editorial Writer for The Hokkaido Shimbun
The views expressed by the author are his own and are not associated with The Hokkaido Shimbun
You can find his blog, J Update here.
February 17, 2025. Special to Asia Policy Point

In remarks to both Houses of the Diet, Prime Minister Shigeru Ishiba celebrated his first meeting earlier this month with U.S. President Donald Trump in Washington, DC. The opposition parties could not point to any failures on Ishiba’s part because Trump refrained from making any burdensome demands. However, subsequent developments in Trump’s implementation of his America First agenda have blurred Ishiba’s “achievements.”

In the Diet discussion, Ishiba hailed a “new golden age of the Japan-U.S. alliance” that would lift bilateral ties to a new height in bringing the world peace and prosperity. “I made sure with President Trump that it would be important to cooperate with like-minded countries, such as the framework of Japan-U.S.-Australia-India, Japan-U.S.-Republic of Korea or Japan-U.S.-Philippines,” said Ishiba.

Emphasizing Japan’s policy of fundamentally enhancing its defense capability, Ishiba told lawmakers that Trump had welcomed that effort and that he had expressed the unshakable commitment of the U.S. to the security of Japan. According to Ishiba, this commitment is based on U.S. nuclear power which is interpreted as “extended deterrence.” Ishiba also reconfirmed Trump’s support for the relocation of the U.S. Force in Okinawa, including construction of an alternative facility at Futenma Air Base in Henoko.

On the economy, Ishiba said that he had impressed upon Trump the fact that Japanese companies have been the top set of foreign investors in the U.S. for five consecutive years. Ishiba focused on mutually beneficial activities, including work between Japan and the U.S. on advanced technologies, such as artificial intelligence and semiconductors, and Japan’s importation of liquefied natural gas from the U.S.

However, lawmakers have questioned whether Ishiba succeeded in continuing Japan’s economic relationship with the U.S. Shortly after his meeting with Ishiba, Trump announced a plan to impose reciprocal tariffs on imported goods and 25 percent tariffs on steel and aluminum. One of the CDPJ lawmakers in the Upper House, Tetsuro Fukuyama, asked whether Trump really shared the prime minister’s view of the value of free trade.

Ishiba told the Diet that he would request that the Trump administration drop Japan from the list of countries subject to the new tariffs. He also said that Trump recognized that the deal between Nippon Steel and US Steel was not only an acquisition but also an investment in US Steel to improve its technology.

Developments since the meeting with Trump have run counter to the messages that Ishiba took away. The expected meeting between Trump and the president of Nippon Steel has not yet been set. Although Trump has argued that no one should take a majority stake in US Steel, Nippon Steel still insists on doing so. Another negative development is Trump’s plan to impose new tariffs on cars, Japan’s main export to the U.S., starting on April 2.

Elsewhere, the U.S. Secretary of Defense, Pete Hegseth, called on NATO countries to raise their defense spending to five percent of GDP, an objective that Trump has long pursued. Along this line, Trump may demand that Japan contribute more to the cost of U.S. security assistance. Still, in the Diet, Ishiba said that Japan would continue its budgeted spending on national at 43 trillion yen for the five years between FY 2023 and FY 2027, regardless of changes in foreign exchange or price inflation.

The public’s overall evaluation of Ishiba’s meeting with Trump has been mildly positive. In the latest poll by Yomiuri Shimbun, 51 percent positively evaluated the meeting, and 38 percent had a negative impression. The approval rating for the Ishiba Cabinet is now at 40 percent according to a poll by Asahi Shimbun, marking a 7-point increase from January.

Considering the volatility of U.S. diplomacy in Trump 2.0, Ishiba cannot feel safe, even if he seems to have come through the summit talks with Trump with positive news.

Ishiba meet Trumps

No Surprise Is the Greatest Surprise 

 By Takuya Nishimura, APP Senior Fellow, Former Editorial Writer for The Hokkaido Shimbun. The views expressed by the author are his own and are not associated with The Hokkaido Shimbun. You can find his blog, J Update here.
February 9, 2025. Special to Asia Policy Point

Prime Minister Shigeru Ishiba did not bungle his first meeting with U.S. President Donald Trump. Indeed, he returned with a renewed U.S. commitment to security in the Indo-Pacific region. Although Ishiba was not able to get Nippon Steel’s acquisition of U.S. Steel over the finish line, he did elicit a favorable statement from Trump encouraging possible passive Japanese investment in U.S. Steel. More importantly for Ishiba in domestic politics, the opposition parties gave his diplomacy a positive review. Still, Ishiba returned to Tokyo with a stack of homework.

The U.S.-Japan Joint Statement reaffirmed that Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security, which commits U.S. to the defense of Japan, would be applied to the Senkaku Islands. The statement also confirmed the continuity of regional multilateral security frameworks through the QUAD (with Australia and India) and trilateral cooperation arrangements with the Republic of Korea and the Philippines. These arrangements were established or enhanced under former President Joe Biden.

As is now the practice in Washington, U.S. government action comes at a price. The price of the U.S. commitments to Japan is one trillion dollars, although Japan was already on course to pay most of that price. Ishiba pledged in the meeting to raise Japan’s investments in the U.S. from $800 billion to an unprecedented $1 trillion. The statement provides that the two leaders will seek to promote business opportunities and significantly increase bilateral investment and employment.

Ishiba framed Nippon Steel’s takeover of U.S. Steel, which had been rejected by Biden, not as an acquisition but as an investment. “Investment to U.S. Steel produces goods contributing to the world with Japanese technology. I share a notion with the president that Japan’s investment does not cause unilateral benefit of one of us,” said Ishiba in the joint press conference. Trump did not reverse Biden’s decision, but did open the door, for now, Nippon Steel to have a non-controlling investment.

Assessments of Ishiba’s debut in bilateral diplomacy with Trump were respectable Although most people in Japan were skeptical of Ishiba’s ability to build a close personal relationship with Trump, Ishiba succeeded in avoiding any hard demands from Trump such as higher tariffs on Japanese products or greater defense spending.

“No surprise was the greatest surprise,” said one of the lawmakers in the Liberal Democratic Party (LDP), Ken Saito. A leader of the LDP Upper House members welcomed the outcome of the summit meeting and expected a positive impact on the Upper House elections this summer. Even the leader of the Constitutional Democratic Party of Japan, Yoshihiko Noda, acknowledged Ishiba’s achievements.

Ishiba’s success, if limited, was the product of at least four factors. First, Ishiba put money in front of Trump. Calculating Japan’s current investment in the U.S at 800 billion dollars, Ishiba offered up a new investment goal of one trillion dollars. Ishiba may also have proposed an investment of $2.7 billion by Nippon Steel directly in U.S. Steel on top of the $14.1 billion purchase price. At least that seemed to the story in Asahi Shimbun, which reported that the CEO of U.S. Steel had made a new proposal in a meeting with Trump on the day before the summit meeting.

Second, Ishiba took advantage of personal connections. For example, to prepare to explain Japan’s investment in the U.S., Ishiba met with his high school classmate, the chairman of Toyota Motor Co., Akio Toyoda. Ishiba also consulted with the founder of SoftBank, Masayoshi Son, who had announced a $100 billion investment in the U.S. Son is an old friend of the foreign minister Takeshi Iwaya, Ishiba’s closest political ally.

Ishiba also relied on the friendship between his former political enemy, Shinzo Abe, and Trump. Ishiba told Trump that “the very close relationship between Japan and the U.S. was built by the president and late prime minister Shinzo Abe.” Ishiba stressed that Japan would continue its firm commitment to Abe’s policy of a “Free and Open Indo-Pacific.”

Third, seeking a religious connection with Trump as fellow Protestants, Ishiba praised Trump as “chosen by God” when Trump was shot by a sniper and firmly stood on the stage with his fist raised to the blue sky. It was obvious that Ishiba hoped to establish a personal friendship through explicit flattery.

Fourth, Ishiba carefully prepared for the summit meeting. He rehearsed the meeting with the staff from both the Ministry for Foreign Affairs and the Ministry of Economy, Trade, and Industry, so that he could speak to Trump without a written script. He brought the same interpreter that Abe had used in his discussions with Trump. Ishiba also brought maps of the U.S. cities in which Japan has invested to explain Japan’s contribution to U.S. economy.

Whether the meeting was successful or not ultimately depends on how Ishiba is able to follow up. Opposition parties have criticized Ishiba for not raising any concern about Trump’s attacks on the sovereignty of Canada, Greenland, and Panama. Ishiba’s pledge to purchase American LNG may deviate from Japan’s goal of reducing greenhouse gas emissions.

In any case, so long as the LDP is a minority party in the Diet, Ishiba’s diplomatic gains may not translate into long-term better approval ratings.

A postscript: Two days after Ishiba’s visit, Trump said that he would impose a 25% tariff on all steel and aluminum imports from all countries, including Japan. Trump also plans to announce reciprocal tariffs later this week although the range of affected imports is unclear. Trump is not aiming the new tariffs at Japan in particular, but at Japan’s steel producers (and other yet unknown manufacturers) will be affected. The history of tariffs under the Trump Administration has yet to be written; it is impossible to predict under what circumstances the tariffs may go up or down. In the meantime, the tariff announcements are sure to temper the public approval gains that Ishiba has been looking for.