Trade deal with U.S. still weighs on Japan's inflation-hit economy
The Japan-U.S. trade deal provides only a brief relief, as tariffs remain at higher levels than before, threatening to hinder Japan's inflation-plagued economy from recovering, analysts say.
While Japan offered an increased $550 billion investment in the U.S. market, according to a social media post by U.S. President Donald Trump, worries remain about the impact of tariffs on Japanese businesses.
Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, said the deal is positive in a sense that uncertainty was removed for Japanese companies to make business plans.
But "the tariff rates have been raised significantly since President Trump took office, and the situation remains the same," he said.
The increasing risk of a U.S. economic slowdown means the agreement is not expected to guarantee a boost to Japan's exports, Kobayashi said.
Tariffs on steel and aluminum products remain at 50 percent and Trump said he would impose a 50 percent tariff on copper imports and reiterated he will soon unleash sector-based duties, including some aimed at protecting the American pharmaceutical and semiconductor industries.
Hideo Kumano, an executive chief economist at Dai-ichi Life Research Institute, said as far as the 15-percent reciprocal tariffs levied on Japanese goods are concerned, "it is difficult to say whether the risk of an economic slowdown for Japan has been removed."
Japan's economy shrank an annualized real 0.2 percent in the January-March period, the first contraction in four quarters, as inflation bit into private consumption.
Economists expect the Japanese economy to rebound in the April-June quarter but it is unclear whether companies will be able to offer high wage increases next year as seen in recent years if they are suffering from slowing exports to the U.S. market. Higher wages are expected to play a key role for Japan to get back on a steady growth path.
A recent surge in long-term interest rates in financial markets also clouds the outlook for Japan's smooth economy recovery, as the move could dent corporate investment and consumer spending.
Takahide Kiuchi, executive economist at Nomura Research Institute, said the Japan-U.S. tariff deal is expected to reduce Japan's gross domestic product by 0.55 percentage point in 2025. He had earlier projected the Japanese economy would be cut by 0.85 point under the assumption the reciprocal tariffs would be imposed at 25 percent.
On the bright side, Japan and the United States did agree on 15 percent tariffs on Japanese cars and other products in the last-minute trade talks with the Trump administration on Tuesday in Washington.
Japanese Prime Minister Shigeru Ishiba urged chief tariff negotiator Ryosei Akazawa to convince the U.S. administration of the benefit of Japan's massive investment plans.
According to Akazawa, the prime minister said "What will benefit both Japan and the U.S. is investment rather than tariffs. Don't be afraid and don't give in. Push the point thoroughly."
A senior Japanese government official said, "Mr. Trump was insisting on 20 percent (for the car tariff) until the very end. It was eventually dropped to 15 percent, and Mr. Trump seemed dissatisfied."
A source close to the matter said Japan's strategy to identify U.S. Commerce Secretary Howard Lutnick as the key negotiator and convince him of the advantages of Japanese investment rather than imposing tariffs on Japan-made goods paid off.
Starting in April, the Trump administration imposed a total tariff of 27.5 percent on foreign-made cars, and the president said earlier in the month the United States would impose 25 percent tariffs on imports from Japan starting Aug. 1 under "reciprocal" tariffs.
The lower auto tariff, which will have a very large impact on the Japanese economy, is an important achievement," said Mieko Nakabayashi, professor at Waseda University specializing in U.S. politics.
"Going forward, the government will be required to provide support to domestic companies in order to cope with the new tariff rates."
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