Japan's Export Growth Slows to 2% as Trade War Intensifies

Japan's export growth decelerated in April, raising concerns about the economic outlook as the U.S. escalated its tariff measures. The Ministry of Finance reported that exports grew by 2% year-on-year, falling short of the anticipated 2.5%. This slowdown in export growth is particularly concerning given that Japan's economy has already been contracting due to the ongoing trade war. The overall export growth for April was 2.0%, a decrease from 4.0% in March and below market expectations of 3.1%. This deceleration underscores the urgent need for the Japanese government to negotiate tariff reductions with the U.S. administration to support the manufacturing sector.

The economic slowdown has sparked worries about the global economic outlook, prompting the Bank of Japan to significantly lower its economic growth forecast during its policy meeting from April 30 to May 1. The central bank also expressed doubts about its previous assertion that sustained wage increases would support consumption and the overall economy. The impact of high tariffs has been evident, with China's retail sales and industrial output growth rates slowing to 5.1% and 6.1% respectively in April, highlighting the risks posed by high tariffs before they are significantly reduced by both countries.

The trade war has had a profound impact on global markets, with the temporary cessation of hostilities between China and the U.S. leading to a surge in global stock markets and risk assets, while safe-haven assets plummeted. However, analysts warn that the trade war could complicate the prospects for tax cuts aimed at stimulating economic growth. The drag from tariffs is expected to outweigh any potential economic boost, further clouding the economic outlook for Japan and other nations affected by the trade tensions.

In April, the average exchange rate of the Japanese yen against the U.S. dollar was 147.7, strengthening by 2.6% compared to the same period last year. This appreciation of the yen has put pressure on both exports and imports, which are denominated in yen. The slower export growth and the strengthening yen are likely to continue to weigh on Japan's economic performance in the coming months, as the trade war shows no signs of abating.