Japan's exports to the United States declined by 13.8% in August, marking the largest drop in over four years, primarily due to higher tariffs and reduced auto shipments.

Despite the US decline, overall Japanese exports were nearly stable, decreasing by only 0.1%, with exports to Europe and the Middle East showing growth.

The decline in exports to the US was less severe than the 2% forecast but remains a significant challenge for Japan's trade sector.

Japanese policymakers are closely monitoring corporate activity, including investments and wages, to assess economic resilience amid ongoing trade headwinds.

The Bank of Japan's Governor Kazuo Ueda has indicated a cautious stance on raising interest rates, citing uncertainties caused by tariffs' impact on the economy.

The auto industry faces additional hurdles with the expiration of the US electric vehicle tax credit in October and disruptions from a raid on Hyundai-LG Energy's Georgia factory, affecting production plans.

Despite export slowdown, Japanese corporate investment increased by 7.6% in the April-June quarter, driven by a 43.4% rise in electric vehicle-related investments in the automotive sector.

Weak export performance poses challenges for Japan’s economic growth and may delay the Bank of Japan’s plans to raise interest rates, given concerns over corporate earnings.

The auto sector remains the most vulnerable part of Japan’s export economy, highlighting its critical role and current struggles.

Experts warn that European growth cannot offset the decline in the US market, which is vital for Japan's auto industry and its supply chain, risking profitability.

The US-Japan trade deal in July provided temporary relief, but ongoing tariffs and the need for a large investment fund continue to cast uncertainty over trade relations.

Tariff impacts are expected to intensify later this year, further affecting Japan’s export-dependent sectors and overall economic outlook.