Is the shadow of tariffs gradually dissipating? Japan's exports to the U.S. turn positive for the first time in 8 months, with significant increases in automobile and pharmaceutical exports

Japan's exports in November increased by 6.1% year-on-year, exceeding market expectations, with exports to the United States turning positive for the first time after eight months of stagnation. This data indicates that the impact of U.S. tariffs is easing, with the rebound in automobile and pharmaceutical shipments becoming the main driving force, while also providing support for further interest rate hikes by the Bank of Japan.

According to Reuters data, under a broad trend of growth for three consecutive months, Japan's exports to the U.S. rose by 8.8% year-on-year in November, successfully reversing the previous downward trend. According to Xinhua News Agency, Japan and the U.S. officially established a trade agreement in September this year, which unified the benchmark tariffs on the vast majority of Japanese imports from the initial 27.5% for automobiles and 25% for other goods down to 15%. This policy adjustment has allowed Japanese exporters to breathe easier.

The improvement in export performance has strengthened market expectations for monetary policy tightening. As tariff concerns have eased, coupled with the Bank of Japan's Tankan survey released on Monday showing that business confidence among large manufacturers has reached a four-year high, the market generally expects the Bank of Japan to raise the short-term policy interest rate from 0.5% to 0.75% later this week.

Driven by strong exports, Japan recorded a trade surplus of 322.2 billion yen (approximately 2.08 billion USD) in November, far exceeding the market expectation of 71.2 billion yen, marking the first trade surplus for the country in five months.

Koki Akimoto, an economist at Daiwa Institute of Research, pointed out that the combination of lower tariff rates and a weak yen has enhanced the price competitiveness of Japanese automakers, leading to a faster-than-expected recovery in automobile exports. However, he also warned that signs of weakness in the U.S. labor market may suppress future automobile demand, meaning that the sustainability of the current export growth momentum remains in question.

Automobile and Pharmaceutical Sectors Lead Export Recovery

In terms of specific data, Japan's overall exports in November increased by 6.1% year-on-year, continuing the growth trend of 3.6% in October and significantly exceeding the intermediate market forecast of 4.8%. The recovery of exports to the U.S. is particularly crucial, with automobile exports to the U.S. growing by 1.5% that month, while pharmaceutical exports more than doubled compared to the same period last year. This has resulted in Japan's trade balance with the U.S. turning positive for the first time in seven months.

Regionally, Japan's exports showed a differentiated trend. Exports to Asia grew by 4.5%, while exports to Europe surged by 19.6%, indicating strong demand in non-U.S. markets.

Inflation Transmission and Demand Slowdown Remain Potential Risks

Despite the current positive data, analysts remind investors to remain vigilant about potential macro risks. Koki Akimoto noted that initially, exporters and distributors were absorbing tariff costs by lowering prices, but this practice is changing. Not only are imported goods from Japan facing similar situations, but imports from other regions are as well. If this trend of cost transfer accelerates inflation, it may, in turn, dampen domestic demand in the U.S In addition, any signs of weakness in the U.S. labor market could directly impact consumer demand for automobiles, given the automotive industry's high dependence on exports to the U.S. Akimoto believes that if inflation worsens due to rising import costs, combined with a slowdown in consumer demand, it could pose a challenge to the continued recovery of Japanese exports