Japan's tough stance: Japan-US trade agreement must include automobile tariff concessions

The Zhitong Finance App learned that Japan's chief trade negotiator Akazawa Ryomasa said on Tuesday that the trade agreement between Japan and the US must include tariff concessions for the automobile industry, which are critical to it. Earlier, US President Donald Trump announced a 25% tariff on Japanese goods starting August 1.

Car tariffs are the focus of negotiations

Ryomasa Akazawa said he had a 40-minute telephone conversation with US Secretary of Commerce Howard Lutnick, and the two sides agreed to continue “active” negotiations.

“We are trying to agree on a package of measures,” Ryo Akazawa said at a press conference, including trade expansion, non-tariff barriers, and cooperation on key economic security issues.

Trump began informing his trading partner the US on Monday that tariffs would be drastically raised, but later said he was willing to delay implementing tariffs if countries put forward an acceptable plan. He also signed an executive order delaying tariffs until August 1.

Ryomasa Akazawa said that Japan has not set a deadline for reaching an agreement with the US, including August 1, and will not sacrifice Japan's agricultural sector in order to reach an agreement as soon as possible.

He also emphasized that protecting the automotive industry is one of his top priorities. The automobile industry is the backbone of Japan's export-dependent economy, and is currently being subject to a 25% tariff.

Akazawa said, “There is no point in reaching a trade agreement with the US if an agreement cannot be reached on automobile tariffs.”

Tariff uncertainty pushed the dollar to a two-week high of 146.44 against the yen, as market expectations for the Bank of Japan to release a tough quarterly report on July 31 weakened. This report may have laid the foundation for the Bank of Japan to raise interest rates this year.

Kansai Mirai Bank strategist Takeshi Ishida said, “If the new deadline is set on August 1, the Bank of Japan probably won't reveal much information in its upcoming July report. Market expectations for recent interest rate hikes will weaken.”

Japan's Finance Minister Katsushin Kato said at a press conference on Tuesday that he currently has no plans to hold talks with US Treasury Secretary Scott Bessent on exchange rates.

Japan's economy is likely to fall into recession

Due to Japan's focus on eliminating automobile tariffs, Japan failed to reach an agreement with the US before Trump's “equal” tariff moratorium expires on July 9.

Japan will hold Senate elections on July 20. Prime Minister Ishiwari Shigeru said that Japan will not “make easy concessions” in order to reach an agreement with the US as soon as possible.

Analysts said that according to recent polls, the ruling coalition led by Shi Fa Mao may not be able to maintain a majority in the Senate, which may complicate trade negotiations.

US tariffs also exacerbated the plight of the Japanese economy, which contracted in the first quarter.

Yoshiki Shinke, an economist at the Dai-ichi Life Economics Research Institute, said, “Japan is likely to fall into recession now.” He predicted that the 25% tariff would reduce Japan's annual economic growth rate by 0.7 percentage points.