Japan UK car trade is motoring along but auto industry fragility could slam on the brakes
Cars are still an important part of Japan UK trade, but industry fragility could put this at risk, say leading audit, tax and business advisory firm, Blick Rothenberg.
Yusuke Takanishi, a partner at the firm, said: “The UK government’s latest trade and investment factsheet shows that cars accounted for £2.3bn, or 24.4% of UK goods imports from Japan. But as the automotive industry faces global pressure, it would be risky to treat them as a guaranteed source of trade stability going forward.”
He added: “The global auto industry continues to face tariff uncertainty, uneven EV demand, cost pressure and a supply chain that remains exposed in places. There are strong concern among Japanese auto suppliers about tariff pressure and supply-chain uncertainty, especially around parts and semiconductors. While cars are still one of the strongest UK imports from Japan, they are also one of the more fragile parts of Japan’s trade outlook.”
Yusuke said: “UK services imports from Japan were already £8.7bn in the latest four-quarter period, which is almost as large as goods imports, which were at £9.5bn. This suggests the UK–Japan relationship is not only about cars and physical supply chains, but also increasingly about technology, know-how, licensing and higher-value activity. Over time, this could help prevent the Japan UK trade relationship relying too heavily on automotive trade.”
He added: “The UK’s current Research and Development (R&D) tax regime offers incentives to support service imports. For accounting periods beginning on or after 1 April 2024, most companies have been able to claim under the merged Research and Development Expenditure Credit (RDEC) scheme; while qualifying loss-making R&D-intensive Small and Medium Enterprises (SME)s may use Enhanced R&D Intensive Support (ERIS), and the merged RDEC offers a 20% taxable expenditure credit.”
Yusuke said: “For Japanese businesses in the UK, this creates a real opportunity not just to sell into the market, but to locate more of their product development, engineering, software, design and potentially IP-related activity in the UK as well.”
He added: “Total UK–Japan trade in goods and services reached £34.6bn in the four quarters to the end of Q4 2025. Within that, UK imports from Japan were £18.2bn, up 7.4%, while UK exports to Japan were £16.3bn, down 1.7%. Japanese inward Foreign Direct Investment (FDI) stock in the UK stood at £102.0bn at the end of 2024, up 3.4% year on year and accounting for 4.8% of total UK inward FDI stock. This shows a long-term business commitment rather than short-term fluctuations in trade flows.”
Yusuke said: “The latest Bank of Japan real trade release for May 2026 suggests that Japan’s external sector is improving, but still in a fairly narrow and fragile way rather than through a broad-based export recovery.”
He added: “The headline numbers look strong, with Japan’s goods exports up 17.0% year on year in May and imports up 12.5%, but export volumes rose only 0.5%. That means a large part of the headline strength still reflects yen weakness and higher prices rather than a decisive improvement in underlying demand. While the trade numbers look encouraging on the surface, the recovery is selective and uneven.”