Japan's trade deficit narrows significantly, but misses surplus forecast, exports plunge on U.S. tariffs

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Japan's trade deficit narrowed to JPY 117.6 billion in July, a significant decrease from the previous year. However, this was not enough to meet market expectations for a surplus. The deficit was driven by a 2.6% drop in exports—the steepest decline since February 2021—as U.S. tariffs impacted demand. Imports also shrank by 7.5%, but this contraction was less severe than what was forecasted.

Japan's exports fell 2.6% yoy in July 2025, marking the third straight monthly decline and the steepest pace since February 2021, worse than market consensus of a 2.1% decrease as the impact of U.S. tariffs intensified.

Japan's imports shrank by 7.5% year-over-year in July, a better-than-expected result compared to the forecast of a 10.4% drop. This was the fourth monthly contraction of the year and came despite Tokyo's ongoing efforts to support domestic demand through measures like minimum wage hikes and cash aid for low-income households.

Separately, core machinery orders—a leading indicator of capital spending over the next six to nine months—unexpectedly rose in June, rebounding after two months of declines.

U.S. Commerce Secretary Howard Lutnick said Tuesday that a document outlining the recent deal on U.S. tariffs on Japanese imports is likely “weeks away.”

The Nikkei 225 Index [https://seekingalpha.com/symbol/NKY:IND#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] fell 1.52% to below 43,200, while the broader Topix Index lost 0.3% to 3,107 on Wednesday, extending the previous session’s decline. The Japanese yen [https://seekingalpha.com/symbol/USD:JPY#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] firmed to around 147.5 per dollar on Wednesday, extending gains from the prior session, even as trade figures disappointed.

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