In a surprising turn of events, Japan's export growth for December 2025 fell short of expert forecasts, clocking in at just 5.1% year-over-year. This decline comes amidst a significant drop in shipments to the United States, which experienced a staggering double-digit decrease.
Analysts surveyed by Reuters had predicted that export growth would remain steady at 6.1%, mirroring the previous month's performance. However, the reality painted a different picture. Throughout the first half of 2025, Japan's export growth struggled, primarily due to concerns over tariffs. Yet, optimism was rekindled towards the year's end when a trade agreement with the U.S. was announced, effectively reducing tariffs to 15%.
December saw exports to the U.S. plummet by 11.1%, a stark contrast to the 8.8% increase recorded in November—the first rise in shipments to the U.S. since March. Meanwhile, exports to mainland China, Japan’s largest trading partner, grew by 5.6%, and exports to Hong Kong soared by an impressive 31.1% compared to the same month last year.
On the import side, December figures revealed a 5.1% annual increase, significantly higher than the previous month's modest rise of 1.3%, thereby exceeding the expected 3.6% growth.
This trade data emerges as Japan prepares for snap elections on February 8, called by Prime Minister Sanae Takaichi, with the Lower House set to be dissolved soon. Analysts suggest that a victory for Takaichi could facilitate the passage of her fiscal policies through parliament with minimal opposition. This might also involve maintaining a weaker yen, as it is favorable for Japan's export-driven economy.
Since the election announcement, Japanese markets have been energized by what is termed the "Takaichi trade," resulting in a general uptick in stock prices while the yen remains weak.
SamJochim, an economist at Swiss private bank EFG, mentioned in a note on Monday, "A win could signal a shift towards a more expansive fiscal policy, especially following the approval of a record draft budget for the upcoming fiscal year starting in April." He indicated that a strong showing for the ruling Liberal Democratic Party might spark a rally in Japanese equities but could simultaneously lead to a sell-off in Japanese government bonds and a further drop in the yen’s value.
Since Takaichi assumed office on October 21, the yen has depreciated significantly, moving from around 151 against the dollar to approximately 158 currently.
This situation raises questions about the long-term implications of such fiscal policies. Are they sustainable? Will the weakening yen ultimately benefit Japan's economy, or could it lead to unforeseen challenges? Join the conversation and share your thoughts!
