Japan – Exposed by trade deal-lite
- 19 September 2024 (3 min read)
Trump negative, Harris neutral
As elsewhere, if the US election outcome is a Harris win, we see a broadly neutral impact for Japanese growth and the Bank of Japan (BoJ). But we would expect greater cooperation on trade and defence.
We expect a Trump presidency, by contrast, to weigh on Japan’s growth as any new tariffs would hit exports. Japan has two bilateral trade agreements with the US and recently agreed to remove the previous Trump-era steel tariffs on around 1.25 million metric tonnes per year. But only around 5% of Japanese goods are covered by this agreement, with notable sectors untouched, particularly autos, which would be vulnerable to broader tariffs. Japan would also probably benefit less than other Asian countries from the substitution of production of certain electronics away from China due to differences in the manufacturing basis. Japanese exports are also heavily exposed to potential China and US economic slowdowns, which account just under 40% of total exports. We thus expect to see export growth slow materially in 2025. Note that in Trump’s first term annual export growth slowed to 0.5% on average in 2018 and 2019, well below the 5% average in the first half of the 2010s.
A Trump presidency may also increase Japanese defence spending. During his last presidency, Trump required Japan to quadruple payments for the some 54,000 US soldiers stationed there, a cost to Japanese tax payers, with no benefit to growth. Given recent rhetoric, further sacrifices will be likely needed if it wants to maintain this presence. And while Trump's demand for increased independent security across the rest of the region may boost defence spending elsewhere, Japan are already prioritising this area, so a similar boost to growth looks unlikely.
Further, if a Trump victory leads to a more hawkish Federal Reserve (Fed), this would support the (BoJ) monetary policy increase towards neutral in the near term. Yet weaker domestic growth and a more dovish Fed amid a US slowdown for 2026 would likely put pressure on such a move and may even require some loosening.
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ
In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.