Japan will continue trade talks with US for mutually beneficial deal, Ishiba says

TOKYO: Japanese Prime Minister Shigeru Ishiba said on Tuesday that he would continue negotiations with the U.S. to seek a mutually beneficial trade deal, after President Donald Trump announced 25% tariffs on goods from Japan starting August 1.

AI Brief

Trump warns of 25% tariffs on Japan but signals possible delay if acceptable proposals are made before August 1.
Tariff uncertainty weakens the yen, clouds interest rate prospects, and threatens to cut Japan's growth and profits.
With elections looming, Japan resists quick concessions, aiming to protect national interests in trade talks.

Trump on Monday began notifying trade partners of steep U.S. tariff hikes, but later indicated a willingness to delay implementation if countries made acceptable proposals.

The move triggered a broad decline in the yen as expectations receded of a near-term interest rate hike.

While Tokyo and Washington have yet to reach a deal, Ishiba noted that recent talks had helped Japan avoid even steeper tariffs of around 30% to 35%.

"We have received a proposal from the United States to swiftly proceed with negotiations towards the newly set August 1 deadline, and that depending on Japan's response, the content of the letter could be revised," Ishiba said at a meeting with cabinet ministers to discuss Japan's strategy on tariffs.

Japan will "actively seek the chance of an agreement that benefits both countries, while protecting Japan's national interest," he added.

Uncertainty on tariffs sent the dollar to a two-week high of 146.44 yen JPY=EBS on fading expectations of a hawkish quarterly report from the Bank of Japan on July 31, which would have laid the groundwork for a rate hike later this year.

"If the new deadline is set on August 1, the BOJ probably won't be able to say much at the upcoming report in July," said Takeshi Ishida, a strategist at Kansai Mirai Bank. "Market expectations of a near-term rate hike will be rolled back."

In a press conference on Tuesday, Finance Minister Katsunobu Kato said he had no plans for now to hold talks on exchange rate matters with U.S. Treasury Secretary Scott Bessent.

ECONOMIC IMPACT

Japan failed to clinch a deal with the U.S. before the July 9 expiration of Trump's temporary pause on his "reciprocal" tariffs, after it focused on eliminating a 25% tariff on automobiles - a mainstay of its export-reliant economy.

With an upper house election on July 20, Ishiba has said Japan will not make "easy concessions" for the sake of an early deal with Washington.

Recent media polls have shown Ishiba's ruling coalition may fail to maintain a majority in the upper house, which could complicate trade negotiations, analysts say.

U.S. tariffs also add to woes for Japan's economy, which shrank in the first quarter.

Real wages in May fell at the fastest pace in nearly two years, while the government on Monday made the bleakest assessment of the economy in nearly five years.

SMBC Nikko Securities expects 25% U.S. tariffs to knock 0.26% point off Japan's economic growth in the current fiscal year ending in March 2026.

"While Japan likely averted the worst-case scenario, 25% tariffs would still hurt exporters' profits by up to 25%," said Kazuki Fujimoto, an analyst at Japan Research Institute.

"If corporate profits worsen, it's hard to avoid companies from toning down efforts to hike wages," he added.