Auto Industry Downturn Could Shake Japan's Economy;Blow to Exports Could Undermine Wage Hikes
The Toyota logo is seen in Chiyoda Ward, Tokyo, in March 2024.
Given that the automotive industry serves as the 'backbone' of the Japanese economy, a decline in its performance could undermine the drive for higher wages in the country.
With its extensive reach encompassing global corporations such as Toyota Motor Corp. and numerous small- and mid-sized parts suppliers, the industry supports 5.58 million jobs.
Japan's annual automobile exports are worth about ¥20 trillion, accounting for 20% of the country's overall exports. Of the exported units, 30% are destined for the United States, making it a significant market.
Amid this situation, the United States imposed an additional 25% tariff on automobiles on April 3 and on auto parts on May 3.
Recent figures reflect emerging macroeconomic challenges. As a result, the Bank of Japan significantly lowered its fiscal 2025 projection for econmic growth from 1.1% to 0.5%.
According to estimates by Daiwa Institute of Research Ltd., the implementation of 'uniform reciprocal tariffs' of 10% by the United States is expected to lower Japan's growth rate by 0.3%.
Sector-specific tariffs on automobiles and steel, among others, would lead to an additional 0.45% decrease.
The impact from tariffs on automobiles alone accounts for 0.36 percentage points, or 80%, of this decrease due to that industry's high dependence on exports to the United States.
'Automobile tariffs will have the most substantial negative impact on the Japanese economy,' said Shinichiro Kobayashi of Mitsubishi UFJ Research and Consulting Co.
'The substantial involvement of small- and medium-sized enterprises in parts manufacturing could result in considerable damage to the real economy, underscoring the urgent need to protect this sector,' he said.
Major automakers, led by Toyota, have enjoyed strong performance due to the weak yen and have led the trend of significant wage increases in recent spring labor negotiations.
However, should they lose momentum due to adverse conditions such as tariffs and a stronger yen, the nationwide drive for higher wages could diminish, potentially resulting in reduced personal spending.
'The wage increases that have become established are in danger of being rolled back,' said Japan Chamber of Commerce and Industry Chairman Ken Kobayashi.
The United States has said it will not include automobile tariffs in the agenda for trade negotiations with Japan, raising expectations for challenging discussions.
Economic revitalization minister Ryosei Akazawa expressed growing concern, saying: '[Major automobile manufacturers] are incurring hourly losses. We seek to conclude this matter with utmost haste.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Nikkei Asia
25 minutes ago
- Nikkei Asia
Isuzu to build test course for self-driving trucks in Japan's Hokkaido
An Isuzu Giga self-driving truck. (Photo by Nikkei) SOTA TANAKA TOKYO -- Isuzu Motors will spend roughly 7 billion yen ($47.1 million) to construct a test course for autonomous driving in fiscal 2027, President Shinsuke Minami said in an interview with Nikkei. The facility, to be built at the Japanese truck maker's Hokkaido testing grounds, will simulate urban driving to improve the precision of Isuzu's self-driving technology. The course is slated to begin use in fiscal 2027.
Nikkei Asia
2 hours ago
- Nikkei Asia
Japan's ispace envisions profitable lunar missions despite setbacks: CEO
Takeshi Hakamada, CEO of ispace, says the startup will become profitable by increasing lunar landers' payloads. (Photo by Katsuya Miyao) KATSUYA MIYAO TOKYO -- Despite two successive failures to land a lunar probe on the moon, Japanese startup ispace has not deviated from its plans to commercialize lunar transportation. Founder and CEO Takeshi Hakamada explained to Nikkei its roadmap for the future and spoke on the challenges facing his company in developing and attaining its goals.
3 hours ago
Japan Briefs Australia on Frigate for Export
Canberra, July 21 (Jiji Press)--The Japanese government Monday held a briefing for Australian political and business leaders on an upgraded version of a Mogami-class frigate that Tokyo aims to export to Australia. In the session, held in Canberra, Japanese participants highlighted that the upgraded version can be mounted with equipment compatible with that of the U.S. military and will thus improve the interoperability among Australia, the United States and Japan. Australia plans to build 11 frigates at an estimated cost of 10 billion Australian dollars. For the type of frigate, the country is expected to choose between the upgraded Mogami and a German frigate by year-end. Takeshi Ishikawa, commissioner of the Japanese Defense Ministry's Acquisition, Technology and Logistics Agency, said in the briefing that missile and other systems used by the U.S. military can be installed on the upgraded Mogami. Strengthening trilateral cooperation among Japan, the United States and Australia will contribute to maintaining stability in the Indo-Pacific region, Ishikawa also said. [Copyright The Jiji Press, Ltd.]
