US-China trade wars could dent Japan's export growth

The US accounts for 20% of Japan's total exports.

Japan’s export earnings could be hit by the proposed tariffs as US is its largest export market accounting for 20% of Japan's total export, BMI Research said. The proposed tariffs will most likely hurt carmakers and the metallurgic industry.

“Given the increasingly acrimonious nature of the current trade spat, Japanese exports could suffer a serious contraction in the event that tariff barriers are erected indiscriminately and at punitive levels,” the research firm noted.

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They added that the possibility of policies on capital controls or limits on foreign asset ownership could also hit Japan’s balance of payments.

“Japan’s merchandise trade balance has only recently returned to positive territory, having recorded a deficit for most of 2012 to 2015,” BMI Research said. They added that they could already see signs of exports coming under pressure with export growth slowing to 5.4% YoY in March from its peak growth of 15.2% YoY in September 2017.

Despite this, BMI Research believes that Japan could retain surplus over the medium term due to strong income inflows that could more than offset the possible export loses from the trade wars.