Stable Japanese export sector should not be mistaken for economic strength
Japanese businesses financial margins continue to be squeezed despite a stable export sector, say leading audit, tax and business advisory firm, Blick Rothenberg.
Yusuke Takanishi, a partner at the firm, said: “On the surface, Japan’s export sector appears relatively stable, but this should not be mistaken for economic strength. While businesses sales are still expected to grow modestly (+3.3% year-on-year), profits are projected to decline by 2.4%, indicating a widening squeeze on margins.”
He added: “Headline export data has shown strong gains at times including growth of nearly 15% year-on-year in April 2026, this largely reflects price effects and currency depreciation rather than volume expansion. In real terms, export volumes have plateaued, remaining around 15–20% above pre-pandemic levels but no longer showing sustained growth. This suggests global demand has entered a more mature, late-cycle phase.”
Yusuke said: “Businesses finances are moving in the opposite direction. The Japanese Ministry of Finance survey shows large firms’ business conditions falling from +4.4 to -0.5 in a single quarter, while small firms remain deeply negative at -17.6. At the same time, expectations for domestic conditions dropped sharply, with large firms’ outlook falling from +8.0 to -4.5.”
He added: “The pressure is most acute among smaller firms, which have limited pricing power and are more exposed to domestic demand. Labour shortages are also easing — not due to increased supply, but because demand for hiring is weakening, with the labour shortage index for large firms falling from 29.4 to 25.7.”
Yusuke said: “Despite differences in external trade balances, Japan and the UK’s economies are both vulnerable to imported inflation and energy price swings caused by the Iran War. Japan’s trade position has been supported by currency effects, but this has also pushed up import costs. By contrast, the UK continues to run a structural trade deficit, with imports exceeding exports (£970bn vs £931bn in 2025), leaving it directly exposed to rising external prices.”
He added: “Japan’s latest business survey points to a clear deterioration in corporate profitability, but the deeper story only becomes apparent when viewed alongside underlying trade dynamics. The primary driver is rising import costs, particularly energy. Japan remains heavily dependent on imported fuel, exposing it directly to global price shocks linked to tensions affecting Middle Eastern supply routes.”
Yusuke said: “What matters is whether firms can sustain margins. In that sense, Japan may be offering an early signal of how an energy-driven shock moves through advanced economies — from costs, to profits, and ultimately to growth.”