Japan's Exports Fall For Second Straight Month With No U.S. Trade Deal In Sight, Raising Recession Fears

Economic

Summary:

Japan's exports in June contracted 0.5% year over year, extending the 1.7% drop seen in May as exports to the U.S. continued to decline for the second straight month.

The decrease in exports was a reversal of the 0.5% rise expected by economists polled by Reuters, and comes amid a lack of a breakthrough in trade talks with the U.S.

Exports to China, Japan's largest trading partner, were down 4.7%, while exports to the U.S. declined by 11.4% year over year, deepening from the 11% fall in May.

The data comes as Japan now faces a 25% "reciprocal tariff" from the U.S. that will take effect on August 1, one percentage point higher than the 24% announced on "Liberation Day."

Early Wednesday, U.S. President Donald Trump reiterated that a 25% tariff would apply to Japanese imports, saying he does not expect to reach a broader deal with the country.

Since April 3, Japanese automobiles imported into the U.S. have also faced a 25% tariff.

Autos made up Japan's largest export to the U.S., or 28.3% of all shipments in 2024, according to customs data.

The additional tariffs could tip the export-dependent Japanese economy into a recession, analysts previously told CNBC.

Exports — including services — made up almost 22% of Japan's GDP in 2023, according to the latest data from the World Bank.

On July 8, Japan's top negotiator Ryosei Akazawa reportedly said that any deal must include auto concessions for the country.

He also brushed aside any deadlines, including the U.S.' August 1 deadline, adding that he would not sacrifice Japan's agriculture sector for the sake of an early agreement.

U.S. President Donald Trump had taken aim at the country's rice sector on July 1, posting on Truth Social that Japan "won't take our RICE" despite a rice shortage in the country.

Japan had imported just over 350,000 tons of rice in 2024 from the U.S., with the U.S. being the largest exporter of rice to Japan in that year.

Japan's economy contracted in the first quarter of the year compared to the previous quarter due to weakening exports, and another such contraction will see it meet the definition of a technical recession.

Source: CNBC

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Manuel

Central Bank

Forex

U.S. President Donald Trump said he would love for Federal Reserve Chair Jerome Powell to resign but acknowledged that many have said it would disrupt the markets if the president were to remove him.

Trump made the comments in an interview with the Real America's Voice network aired on Wednesday.

WHY IT'S IMPORTANT

Trump has criticized Powell on an almost daily basis in recent days for being "too late" to cut interest rates.

The White House and some Republicans have recently expressed criticism of cost overruns in a $2.5 billion renovation of the Fed's historic headquarters in Washington.

The criticism has confirmed the view that the Trump administration is actively exploring those costs as a possible avenue to try to fire the Fed chief well before his term as chair ends in May 2026.

There has been no evidence of fraud, and the Fed has pushed back on criticism of its handling of the project.

KEY QUOTES

"I'd love if he wants to resign, that would be up to him. They say it would disrupt the market if I did," Trump said in the interview in which he later reiterated criticism related to the costs of the renovation of the Fed's headquarters.

A Fed spokesperson had earlier pointed to Powell's repeated statements that he has no intention of resigning and would not if asked to do so.

CONTEXT

Powell, who was nominated by Trump in late 2017 to lead the Fed and then nominated for a second term by then-President Joe Biden four years later, has said he intends to serve out his term as Fed chief, which ends on May 15.

Trump said earlier on Wednesday he is not planning to fire Powell.

Source: Reuters

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Daniel Carter

Central Bank

Political

U.S. President Donald Trump said he would love for Federal Reserve Chair Jerome Powell to resign but acknowledged that many have said it would disrupt the markets if the president were to remove him.

Trump made the comments in an interview with the Real America's Voice network aired on Wednesday.

WHY IT'S IMPORTANT

Trump has criticized Powell on an almost daily basis in recent days for being "too late" to cut interest rates.

The White House and some Republicans have recently expressed criticism of cost overruns in a $2.5 billion renovation of the Fed's historic headquarters in Washington.

The criticism has confirmed the view that the Trump administration is actively exploring those costs as a possible avenue to try to fire the Fed chief well before his term as chair ends in May 2026.

There has been no evidence of fraud, and the Fed has pushed back on criticism of its handling of the project.

KEY QUOTES

A Fed spokesperson had earlier pointed to Powell's repeated statements that he has no intention of resigning and would not if asked to do so.

CONTEXT

Trump said earlier on Wednesday he is not planning to fire Powell.

Source: Yahoo Finance

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Manuel

Middle East Situation

Israel launched powerful airstrikes in Damascus, blowing up part of the defence ministry and hitting near the presidential palace as it vowed to destroy government forces attacking Druze in southern Syria and demanded they withdraw.

The attacks marked a significant Israeli escalation against the Islamist-led administration of interim President Ahmed al-Sharaa. They came despite his warming ties with the U.S. and his administration's evolving security contacts with Israel.

Describing Syria's new rulers as barely disguised jihadists, Israel has said it will not let them move forces into southern Syria and vowed to shield the area's Druze community from attack, encouraged by calls from Israel's own Druze minority.

Sweida residents said they were holed up indoors, while one Israeli Druze say they felt helpless watching the violence in Syria.

The U.S. said the fighting would stop soon.

"We have agreed on specific steps that will bring this troubling and horrifying situation to an end tonight," Secretary of State Marco Rubio said on social media.

The United Nations Security Council will meet on Thursday to address the conflict, diplomats said. The news of the meeting came after Syria called for the council to meet as soon as possible to “address the consequences of the Israeli aggression on Syrian territory,” according to a letter seen by Reuters.

Israel's ambassador to the U.N., Danny Danon, called for the council to "condemn the barbaric crimes committed against innocent civilians on Syrian soil."

Convoys of Syrian security forces and tank transporters carrying tanks were seen moving outside of Sweida Wednesday night.

The U.S. State Department called on Syria to withdraws its troops to allow for de-escalation.

Secretary of State Marco Rubio said "all the parties involved" have agreed on steps that will "bring this troubling and horrifying situation to an end tonight."

Source: Reuters

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Manuel

Economic

Political

Investors are becoming more measured in their reaction to news about Trump's Washington policy, with Wednesday's whipsawing headlines over Federal Reserve Chair Jerome Powell triggering a reaction that fell short of what could happen if the Fed chair was indeed fired.

The S&P 500 briefly fell as much as 0.7% and the dollar sank 0.9% on Wednesday following reports Trump was close to firing Powell.

To some investors, the initial knee-jerk moves - soon to be unwound as Trump denied he was planning Powell's ouster from the Fed - seemed relatively shallow and pointed to investors being unwilling to put too much stock in headlines involving Trump administration policy.

Part of the reason for the market’s reaction is that investors have learned from experience that news headlines about potential actions by the Trump administration can change rapidly, market participants said.

"I think there is a group of people who thought it was a trial balloon," Thierry Wizman, global FX and rates strategist at Macquarie in New York, said.

"That it was not serious, that it was just Trump testing the market and that if the market fell too much, he would change his view in any case so there's no reason to bid stocks down excessively," he said.

The White House declined to comment on whether Trump was testing the market, instead pointing to his remarks earlier in the day where he said he is not planning to fire Powell even as he unleashed a fresh round of criticism against the central bank chief and declined to completely reject the possibility of ousting him.

Trump, who in the past has suggested he could fire Powell, has also at various times said he would not do so.

Bloomberg News, which first reported Trump was planning to fire Powell soon, did not immediately respond to a request for comment.

"We don’t know if Trump will follow through on the threat," Brian Jacobsen, chief economist at Annex Wealth Management, said.

The many twists and turns in U.S. tariff policy since the start of the year have already inured investors to abrupt changes in policy.

"Traders and investors have learned to take political posturing with a grain of salt," said Karl Schamotta, chief market strategist at Corpay.

The limited reaction, especially in stock markets, also points to some investors seeing Powell's potential ouster as clearing the path for rate cuts, some analysts said.

"There is an element of the market that wants to see lower rates in the short term ... they're happy to have the Fed cut," Wizman said.

Worries over the Fed's independence notwithstanding, lower rates would reduce borrowing costs for companies, potentially encouraging investment and boosting corporate profits, while also making stocks relatively more attractive compared to lower-yielding bonds and savings.

"Perhaps there are some traders who like the idea of lower rates more than the loss of independence," Steve Sosnick, chief strategist at Interactive Brokers, said.

'MINI-TANTRUM'

Still, market participants warned that Wednesday's market gyrations, fleeting as they were, offered a glimpse on how global financial markets might react should Powell be ousted.

"This morning’s mini-tantrum provided the administration with a clear warning of the negative consequences," Schamotta said.

"Today's episode provided a tiny taste of the cataclysmic moves that could unfold if the Trump administration actually moved forward with untethering the world’s monetary anchor," he said.

Investors had been on edge for weeks about the prospect of Powell being removed from his job before his term ends next May, as Trump has repeatedly criticized him for not cutting U.S. rates quickly enough.

Even if Trump doesn't fire Powell, just nominating a successor - something Trump has said he is considering - would trouble the market, investors said.

The nomination of the next Fed Chair so far in advance of the end of Powell's term would create the likelihood of a "shadow" Fed chair who offers potentially clashing views with the sitting central bank leader on monetary policy. This could potentially sow confusion in the market about the outlook for monetary policy, investors said.

Such threats to the Fed's perceived independence could push investors to lighten exposure to dollar-denominated assets and revive the worries about investing in America that surfaced earlier this year when Trump first slapped hefty tariffs on global trading partners, strategists said.

"This is part and parcel of the thing we've already been growing accustomed to," Macquarie's Wizman said.

"It's a theme that has weakened the dollar since the beginning of the year. It's a theme that has caused long-term yields to go up," he said.

For now, investors remain on edge about whether Trump will end up firing Powell.

"Trump in particular seems to take umbrage at the idea that he doesn't follow through on some of these things. So it wouldn't surprise me if they did. It wouldn't surprise me if they didn't," said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

Source: Reuters

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Economic

Stocks

Some top executives at Wall Street banks have been showing concern about higher inflation and potential deterioration of the U.S. economy as tariffs take effect, noting there has been more cautious behavior from corporate clients.

"We have seen pauses in capex and hiring amongst our client base," Citigroup's Jane Fraser told analysts on Tuesday. "All of that said, the strength of the U.S. economy driven by the American entrepreneur and a healthy consumer has certainly been exceeding expectations of late."

The bank expects consumer spending to cool in the second half if a spike in prices occurs.

Wells Fargo CEO Charles Scharf said he has met with some commercial banking clients and described how they are navigating the new environment.

"Many have found ways to avoid passing the 10% tariffs on to their customers," Scharf said. "At the same time, they are preparing for the downside and are not growing inventories or hiring aggressively and developing contingency plans if the downside scenario occurs", he told analysts.

Scharf also expressed concern about financial assets. "We should recognize there is risk to the downside as the markets seem to have priced in successful outcomes."

All six of the biggest U.S. banks - JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley - beat analysts' profit expectations in the latest quarter, helped by the financial health of consumers and businesses, as well as busy trading desks.

Still, while CEOs touted the resilience of the world's largest economy, some described cautionary measures companies are taking due to uncertainty around tariffs.

U.S. stocks plummeted after President Donald Trump unveiled tariff rates on April 2. They have since recovered, with both the S&P 500 and the Nasdaq Composite hitting all-time highs on June 27 and new records since then.

Still, U.S. companies have navigated an uncertain environment. Trump has paused some tariffs while trade partners negotiate a deal, adding more unpredictability to business.

Following "Liberation Day," global brokerages saw a greater chance of a recession this year, with JPMorgan calculating a 60% probability. Major firms later trimmed their gloomy outlook. JPMorgan sees the recession probability now at 40%.

Many executives said their main concern is how consumers will react if goods prices surge because of tariffs.

Rising prices pulled inflation higher in June. On Tuesday, economists viewed the latest Consumer Price Index as evidence that Trump's rising import taxes were passing through to consumers. It increased 0.3% last month, the most in five months, in line with expectations.

Yields on the 30-year Treasury hit a six-week high after the inflation data on Tuesday. The S&P 500 stock index ended lower.

Jamie Dimon, CEO of JPMorgan Chase, on Tuesday maintained a cautious stance on the U.S. economy, saying "significant risks persist," while recognizing its resilience.

Goldman Sachs CEO David Solomon highlighted the amount of uncertainty going ahead. "Geopolitical concerns have intensified in many regions, but notably in the Middle East, a number of trade agreements have yet to materialize, and that the ultimate impact on growth from higher tariffs is yet unknown," he told analysts on Wednesday.

Overall, top executives said they expect the dealmaking pipeline to pick up in the second half of the year, as business owners get more comfortable with the new tariff environment. Most banks reaped gains from an M&A rebound in the second quarter already.

"Corporations are looking past tariffs to lead their companies through strategic movements and growth," Morgan Stanley's Chief Financial Officer Sharon Yeshaya said.

Source: Reuters

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Manuel

Cryptocurrency

Political

The House approved on July 16 a motion to reconsider the crypto‑related proposals package combining the GENIUS Act, the CLARITY Act, and the Anti‑CBDC Surveillance Act in a 215-211 vote.

Alex Thorn, head of research at Galaxy Digital, said on X that analysts expect a vote on the GENIUS Act today.

Because the House agreed to a Senate‑passed resolution text that bundles the three measures procedurally, but does not itself constitute enrolled statutory language. As a result, the package does not go directly to the President.

The approval positions House and Senate leaders to move the underlying bills individually, fold them into another legislative vehicle, or draft a consolidated conference substitute that can clear both chambers in identical statutory form for presidential action.

Since this was a procedural bundle rather than a single formal bill, the next step requires converting the package into enactable legislation.

Committees or leadership can discharge, mark up, or attach the component measures to moving vehicles.

Crypto Package Setback on July 15

House leaders advanced GENIUS for floor action one day after members rejected a rule that would have packaged the same three digital asset measures with the annual defense appropriation.

President Donald Trump urged Republicans on Truth Social on July 15 to support that combined rule, writing that passage would keep the United States “lightyears ahead” of China and Europe on digital asset policy.

Libertarian‑leaning and House Freedom Caucus members objected to the bundling and pressed for stand‑alone debate time.

Representative Chip Roy told reporter Laura Weiss he wants “a hard ban” on a US central bank digital currency and ranked the CLARITY Act as equally important, saying opponents “need to be dealing with this all at once.”