Double whammy for Land of the Rising Sun

Hans India

13 hours ago

In 2025, India's economic growth has propelled it to become the world's fourth-largest economy, surpassing Japan. While this marks a significant milestone for India, Japan faces challenges including potential US tariffs and a sluggish recovery, leading to anxieties amidst this shift in global economic rankings.
As the US prepares to impose 25 per cent tariffs on Japanese goods from August 1, 2025, threatening to erode export earnings and slow growth, and with India projected to overtake Japan as the world's fourth-largest economy, Asia's trade dynamics are undergoing a dramatic shift. Against this backdrop, Rubix Data Sciences has released its latest Country Insights Report: Japan, offering a timely analysis of how Japan is navigating these challenges and how its deepening partnership with India is becoming increasingly strategic.
Despite decades of economic strength, Japan is facing headwinds. Growth in 2024 slowed to just 0.1 per cent, and while corporate investments in chipmaking and record-breaking Mergers and Acquisitions (M&A) have offered some support, weak household spending and rising import costs have weighed heavily. Inflation, once dormant, remains above target at 3.7 per cent, with the Bank of Japan (BoJ) cautiously raising rates.
The US' 25 per cent tariffs on Japanese exports, scheduled to take effect August 1, 2025, could slash Japan's GDP growth by up to 0.26 percentage points and cut exporter profits by 25 per cent, particularly in the critical automotive sector. 'The trade deficit has doubled in three years, and new tariffs are set to deepen the strain,' the report warns.
Notably, the report highlights how Japan's corporate sector is responding with a wave of M&A activity, driven by governance reforms, private equity interest, and undervalued assets. Japan recorded its busiest year forM&A since 1985 in 2024, with deal value surging 44 per cent to over $230 billion, and the momentum has continued into 2025. Landmark transactions, such as Nippon Steel's acquisition of US Steel and Bain Capital's record healthcare deal, illustrate how Japanese firms are pursuing growth abroad and strengthening competitiveness at home.
In parallel, India is projected to surpass Japan's GDP in 2025, signalling a tectonic shift in Asia's economic hierarchy. The report notes India's GDP edging ahead to $4,187 billion, narrowly overtaking Japan. Yet, rather than competitors, the two nations are increasingly strategic partners. Bilateral trade between India and Japan grew at a 13 per cent CAGR between FY2021 and FY2025 to cross $25 billion in FY2025, though India's trade deficit with Japan has nearly doubled, reaching $12.7 billion.
Japan's imports from India, buoyed by rising demand for automobiles and smartphones, grew at an impressive eight per cent CAGR between FY2021 and FY2025, while India's imports from Japan grew by 15 per cent CAGR during the same period, driven by steel, copper, and precious metals. Automobiles now account for 13 per cent of India's exports to Japan, a remarkable rise from just one per cent four years ago, positioning India among Japan's top-5 car suppliers.