Japan’s export volume to the U.S. has fallen to the weakest level since 2021 while its overall exports remain above the 2024 average, Marcel Thieliant, head of Asia-Pacific at Capital Economics, said in a note on Thursday, citing recent data from the Bank of Japan.

“What is becoming increasingly clear, though, is that firms are responding to U.S. tariffs by stepping up production in their U.S. subsidiaries,” he explained.

“Stepping back, falling exports are a headwind to economic activity in Japan,” Thieliant said. “But as long as firms are able to keep serving U.S. customers via their U.S. subsidiaries, the impact on corporate profits, investment, and wage growth should be minimal.”

Investment from Japan could see an even bigger surge in the coming years. In July, the U.S. reached a trade deal that lowered the tariff rate on Japan to 15% from Trump’s earlier 25%. In exchange, Japan agreed to pour $550 billion in key U.S. industries via a “Japanese/USA investment vehicle” that will be deployed “at President Trump’s direction.“

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