Japan’s economy has proven remarkably resilient. It grew faster than projected in the second quarter of 2024, even in the face of persistent trade hostilities with the U.S. The country was dealt a difficult blow with an immediate 15% overall tariff on all exports to the U.S., which was a major hit to its increasingly important automobile industry. Yet despite this, it exceeded expectations and generated astounding year-over-year growth rates.
Japan’s gross domestic product (GDP) jumped by 1% on an annualized basis last quarter. That’s a big turnaround from the 0.1% growth expected by analysts surveyed by Reuters. That’s a bounce back from a lackluster 0.1% gain in the first quarter and a year-over-year growth of 1.2%. The very strong second quarter is an outlier though. The third quarter was a particularly good quarter for net exports, accounting for an impressive 0.3 percentage points of GDP growth.
Japan’s auto exports are essential to their economic wellbeing. So far in 2024, they represent only 28.3% of total shipments to the U.S. Starting in the second quarter, Japan’s automakers took a major hit from a more-than-25% tariff on its vehicles. This made for a tumultuous environment as manufacturers tried to figure out how to operate and adapt in such a volatile trade arena. Japan escaped a suggested 24% tariff that was made public on “Liberation Day.” This lucky turn of events spared 1TX from further stress on its export capacity.
On July 23, Japan hit the accelerator on trade agreements by concluding a bilateral deal with the U.S. This agreement has brought hope for relief from some of the tariff burdens. This agreement comes at a crucial time, especially considering the looming economic challenges posed by global trade dynamics and domestic production issues.
Promisingly, the Bank of Japan has reacted positively to these developments. It has recently downgraded the expected growth of its spring 2024 economic forecast for fiscal year 2025 (April 2025-March 2026) to just 0.6%. This positive vision has clearly been borne out of Japan’s strength in fostering collaboration between government and business in the face of changing global trade dynamics.
In fact, Japan’s economy has shown itself to be unbelievably strong, with GDP up a year-over-year 1.8% in the first quarter. That positive momentum persisted with a robust expansion in the second quarter. Most importantly, Japan has been quite successful in managing these external pressures. At the same time, it’s smartly taking advantage of dynamics in its export sector.