Japan: An International Trade Overview

Overview: Japan’s International Trade Environment

Japan’s international trade environment continues to evolve amid shifting global economic trends, technological advancements and geopolitical tensions. As the world’s third-largest economy, Japan remains a pivotal trading partner both regionally and globally, but recent years have brought both opportunities and challenges for businesses engaged in cross-border trade with or within Japan.

Economic conditions and trade activity

Japan’s export-driven economy has experienced gradual recovery in global demand, particularly in the automotive, electronics and machinery sectors. According to the Ministry of Finance, exports grew by approximately 4.7% year-on-year in the first half of 2025, supported by resilient demand from the United States and Southeast Asia. The weakening yen, which reached multi-decade lows against the US dollar in 2024, enhanced the competitiveness of Japanese goods overseas but also raised import costs for energy, food and raw materials, significantly impacting domestic businesses and consumers.

Inflationary pressures, though milder than in many Western economies, have led to cautious consumer spending and prompted the Bank of Japan to adjust monetary policy cautiously. Interest rates, raised for the first time in over a decade in 2024, have increased borrowing costs and influenced investment strategies for both domestic and foreign businesses.

Legal and regulatory developments

Japan’s trade regulation framework remains stable and transparent, but recent developments have introduced new compliance requirements and strategic implications for international businesses. Japan continues to uphold multilateral trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), which reduce tariffs and streamline customs procedures for member states.

FEFTA amendments

In 2024, amendments to the Foreign Exchange and Foreign Trade Act (FEFTA) strengthened screening for foreign investment in sensitive sectors, including semiconductors, critical infrastructure and advanced technologies. These changes reflect growing economic security concerns and align Japan with similar measures in the US and EU. Businesses now face stricter notification and approval processes, particularly for inbound M&A and/or joint ventures involving strategic assets.

Sustainability and ESG compliance

Another notable trend is the emphasis on sustainability and responsible supply chains. The government has issued guidelines encouraging human rights due diligence and environmental risk management in overseas operations. While currently voluntary, these guidelines signal a move towards mandatory ESG compliance in the near future.

Geopolitical factors and strategic considerations

Japan’s trade environment is increasingly shaped by geopolitical dynamics in the Asia-Pacific region. Tensions between the US and China, combined with uncertainties over global supply chains and technology transfer, have prompted Japanese businesses to diversify trading partners and reduce dependency risks. The government has promoted “friend-shoring” – relocating supply chains to like-minded countries – as a risk mitigation strategy, offering subsidies for reshoring essential manufacturing and supporting strategic industries.

Sanctions and export controls remain a key concern, especially for businesses dealing with advanced technologies, dual-use goods or entities subject to international restrictions. In 2024, Japan joined G7 partners in tightening controls on exports of semiconductor manufacturing equipment to certain countries, creating compliance challenges for manufacturers and technology firms.

Opportunities and challenges

Japan’s international trade practices offer significant opportunities for businesses that can navigate its regulatory landscape and adapt to changing market conditions. The country’s commitment to free trade and strong intellectual property protection provides a secure environment for investment and commerce. Government support for innovation, digital transformation and green technologies creates opportunities for collaboration in emerging sectors such as renewable energy, biotech and advanced manufacturing.

However, businesses face challenges including complex customs procedures, language and cultural barriers, and the need to keep pace with evolving legal requirements. Supply chain disruptions – whether caused by geopolitical events, natural disasters or pandemics – demand robust risk management and contingency planning. Businesses are advised to engage proactively with local advisers, invest in compliance infrastructure and monitor regulatory changes to ensure smooth operations.

Conclusion

Japan’s international trade environment in 2024–25 was characterised by resilience and adaptability, driven by economic recovery, regulatory reforms and shifting geopolitical alliances. While challenges remain – from compliance complexities to global uncertainties – Japan continues to be an attractive and reliable partner for international commerce. For businesses, success will depend on understanding the local landscape, building strong relationships and embracing innovation in a rapidly changing world.