Japan's July Exports Drop By 2.6%, Steepest Plunge In More Than Four Years

Economic

Summary:

Japan's exports dropped 2.6% year over year in July, their steepest drop since February 2021.

The fall was sharper than the 2.1% contraction expected by economists polled by Reuters and compared to the 0.5% drop seen in June.

Imports to the world's fourth-largest economy sank 7.5%, compared to the 10.4% fall expected by the Reuters poll.

Exports to the U.S. also continued to fall, dropping 10.1% in July and slightly softer than June's decline of 11.4%.

Japan reached a deal with Washington on July 22 that saw its so-called "reciprocal tariff" lowered to 15% from the 25% threatened by U.S. President Donald Trump earlier that month.

The trade readings come after Japan reported its second-quarter GDP figures, which saw the country beat expectations as net exports drove growth.

Japan's economy grew by 0.3% quarter over quarter and 1.2% on a yearly basis in the second quarter as exports remained resilient, even as imports fell.

Hirofumi Suzuki, Chief FX Strategist at Sumitomo Mitsui Banking Corporation, told CNBC after the GDP release that while exports have been volatile, there was a higher level of automobile shipments in April to June.

This may be due to an increase in catch-up shipments after production recovered from an accident at an automobile parts manufacturer in March, Suzuki said.

Tariffs on automobiles were cut from 25% to 15% as part of Japan's trade deal. Autos are one of Japan's largest exports, and make up its largest export to the U.S. in 2024.

The value of auto exports — which includes cars, buses and trucks — to the U.S. plunged 28.4% year over year in July, a steeper fall compared to the 26.7% decline in June.

While the effects of the 15% tariffs will not show up until the August data, analysts have warned about their impact on the Japanese economy.

Senior economist Masato Koike at Sompo Institute Plus said in an Aug 14 note that there was a possibility that Japan could enter a recession, depending on the magnitude of the impact of tariffs.

Source: CNBC

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James Whitman

Economic

Key points:

● Analysts predict Nikkei will slip to 42,000 by December

● Recent Nikkei gains linked to corporate governance push

● Outlook hinges on Japan's fragile trade deal with US

Japan's Nikkei share averagewill likely ease off recent record highs toward year-end, according to strategists in a Reuters poll, though much depends on a fragile trade agreement with the United States.

Japan's benchmark stocks index last week surpassed its previous intraday record, and traded as high as 43,876.42 this week.

The index is up more than 9% so far this year, but is forecast to slip back to 42,000 at the end of December, according to the median estimate of 18 analysts polled August 8-18.

The Nikkei joined global equity bourses in a steep dive in April after U.S. President Donald Trump announced sweeping tariffs on imports. As Trump backed down on deadlines and his administration worked out bilateral trade deals, many benchmarks recovered.

Japanese equities jumped around 11% after the U.S. agreed last month to reduce tariffs on Japanese auto imports to 15% from 27.5%, though a timeframe for the change and other details remain nebulous.

"The 15% tariff is relatively low compared to the one on China, so Japanese companies may be able to gain a competitive advantage," said Masayuki Kubota, chief strategist at Rakuten Securities. "However, there is growing uncertainty about whether President Trump will actually uphold this agreement."

Japan's economy remains largely reliant on exports. Data last week showed that the country's gross domestic product, the fourth biggest globally, grew much faster than expected in the second quarter.

GOVERNANCE PUSH

A major theme behind the Nikkei's gains in recent years has been the Tokyo Stock Exchange's push to boost corporate governance. Under pressure to improve returns and corporate value, companies have bought back shares in droves, and go-private deals have proliferated.

The Nikkei early last year finally broke through the key high of 38,957.44 that had stood since 1989 during Japan's heady bubble economy. The gauge of blue-chip shares went on to set an intraday high of 42,426.77 on July 11, 2024, before the momentum petered out.

Japan's long road back

With the tariff turmoil diminishing and the domestic economy resilient, nine of 12 analysts in the Reuters poll expect Japanese corporate earnings to be higher in the second half of 2025 than the first.

"If the U.S. economy is solid, it becomes easier for Japanese firms to raise prices for their exported goods to cover the cost of the tariffs," said Yugo Tsuboi, chief strategist at Daiwa Securities. "That will underpin corporate earnings."

Median forecasts predict the Nikkei will trade at 43,000 by mid-2026 and 45,500 by end 2026.

Improving domestic wages, along with looser monetary policy by the U.S. Federal Reserve, will continue to make Japan a destination for foreign investors, said Oanda senior market analyst Kelvin Wong.

"An increase in global liquidity due to a weaker U.S. dollar and an impending dovish Fed pivot is likely to trigger a positive feedback loop back into the Japanese stock market," said Wong.

BOJ AND POLITICS

Within the country, the major events investors are looking out for are a long-delayed rate hike by the Bank of Japan and the potential for political upheaval.

Prime Minister Shigeru Ishiba is under pressure to step aside after an electoral drubbing last month. Expectations that his replacement will be more fiscally expansive have added to tailwinds for stocks, said IG analyst Tony Sycamore.

"We do see the market continue to run higher into year-end, and then after that I'd expect to see a pullback as we get close to the BOJ rate-hiking cycle taking effect," he added.

Source: Reuters

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Manuel

Cryptocurrency

Central Bank

Federal Reserve Vice Chair for Supervision Michelle Bowman acknowledged that crypto firms experienced debanking due to regulatory uncertainty.

During the Wyoming Blockchain Symposium on Aug. 19, Bowman also announced a fundamental shift in the Fed’s approach to blockchain innovation.

She revealed the central bank eliminated reputational risk considerations from bank supervision in late June to address barriers preventing financial institutions from serving digital asset companies engaged in legal activities.

The Fed official stated: “Your industry [crypto] has already experienced significant frictions with bank regulators applying unclear standards, conflicting guidance, and inconsistent regulatory interpretations.”

Bowman emphasized that banks should not face penalties for serving customers conducting lawful business operations, stating that customer selection decisions “lie solely within the purview of bank management” rather than regulatory interference.

Furthermore, she noted the Fed’s transition from an “overly cautious mindset” toward embracing blockchain technology within the traditional banking system.

She warned that regulators must choose between shaping technological frameworks or allowing innovations to bypass banks entirely, potentially diminishing the banking sector’s economic relevance.

The Fed is updating examination manuals and supervisory materials to ensure lasting implementation of the reputational risk removal policy.

Four-principle regulatory framework

The Fed Vice Chair established four core principles guiding the central bank’s new approach to digital asset regulation.

Regulatory certainty tops the list, addressing industry concerns about investing in blockchain development without clear supervisory standards.

Bowman questioned whether companies would partner with banks, knowing that regulatory scrutiny brings uncertainty, rather than pursuing alternatives outside the banking system.

Tailored regulation forms the second principle, requiring supervisors to evaluate use cases based on specific circumstances rather than applying worst-case scenario expectations.

The Fed must recognize unique features distinguishing digital assets from traditional financial instruments while avoiding one-size-fits-all approaches that fail to address actual risk profiles.

Consumer protection represents the third principle, ensuring customer-facing products comply with existing consumer protection laws, including prohibitions against unfair, deceptive, or abusive practices.

Digital asset frameworks must incorporate Bank Secrecy Act and anti-money laundering requirements while maintaining bank safety and soundness standards.

American competitiveness completes the framework, positioning the US as the premier global innovation destination. Bowman warned that failing to establish appropriate regulatory structures could jeopardize long-term American leadership in financial technology development.

Technology integration and supervision changes

Bowman announced the Fed’s “novel supervision” activities will be reintegrated into Reserve Bank examination staff, reestablishing normal supervisory processes for monitoring banks’ innovative activities.

She proposed allowing Federal Reserve staff to hold minimal digital assets to develop a working understanding of blockchain functionality, comparing the necessity to hands-on learning rather than theoretical knowledge.

[Editor’s Note: This is an abrupt U-turn from previous government approaches, notably those of former SEC Chair Gary Gensler. Gensler taught college-level blockchain courses at MIT yet never actually touched a blockchain with his own funds, having admitted to never holding any digital assets and, therefore, never executing his own transactions.]

The Fed recognizes tokenization potential for facilitating faster asset ownership transfers while reducing transaction costs and settlement risks. Bowman noted that banks of all sizes, including community institutions, can benefit from efficiency gains flowing from asset tokenization technology.

Furthermore, she highlighted that the GENIUS Act passage and presidential signature position stablecoins as integral components of the financial system, with implications for traditional payment rails.

Bowman called for industry engagement to help regulators understand blockchain’s capacity for solving additional problems beyond current use cases.

She specifically requested input on leveraging new technologies to combat fraud, identifying this as an exciting collaboration opportunity between the Fed and the digital asset sector.

The Fed Vice Chair concluded that innovation and regulation complement rather than oppose each other in creating more modern, efficient financial systems.

Source: Cryptoslate

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Stocks

Economic

Major U.S. equities indexes were mixed Tuesday as tech sector losses weighed on their performance. The S&P 500 ended the session 0.6% lower, while the tech-heavy Nasdaq dropped 1.5%. The Dow held onto a fractional gain.

Shares of analytics software provider Palantir Technologies (PLTR) tumbled over 9%, falling the most of any S&P 500 stock. The slide marked the fifth consecutive day of losses for the stock, which was sitting at record-high levels just a week ago after a strong earnings report. The latest move lower came after short seller Andrew Left of Citron Research expressed concerns about the stock's valuation, suggesting its price has become disconnected from the company's fundamentals.

The price of Bitcoin (BTCUSD) and other major cryptocurrencies moved lower, extending declines posted over the past week. Shares of Coinbase Global (COIN), operator of the largest U.S. cryptocurrency exchange, sank 5.8%.

Shares of enterprise software provider Oracle (ORCL) also lost 5.8% Tuesday. The company is in the midst of a reorganization and has been cutting jobs, particularly in its cloud infrastructure division as it aims to focus more resources on AI, according to reports last week. Yesterday, Bloomberg reported Mary Ann Davidson, the company's long-serving chief security officer, would be stepping down from her role.

Intel (INTC) shares soared nearly 7%, logging the top performance in the S&P 500 Tuesday. The latest push higher for the struggling chipmaker's stock followed the announcement of a $2 billion investment by Japan's SoftBank Group (SFTBY). Masayoshi Son, CEO of SoftBank, said the move reflects the firm's anticipation of an expansion in U.S. semiconductor manufacturing, and comes amid speculation the Trump administration is evaluating taking a stake in the struggling chipmaker.

Shares of Prologis (PLD), a real estate investment trust focused on warehouses, data centers, and other industrial properties, jumped 5%. Analysts at Mizuho upgraded Prologis to "outperform" from "neutral" and raised their price target, citing a more favorable view on the industrial REIT subsector. Mizuho suggested Prologis could be positioned to benefit from potential interest-rate cuts, as well as growth following the recently passed tax and spending bill.

Palo Alto Networks (PANW) shares added just over 3% after the cybersecurity firm reported quarterly earnings that topped analysts' forecasts. The company's outlook for fiscal 2026 also exceeded consensus estimates. Analysts said the strong quarter demonstrated Palo Alto's success in the implementation of its platformization strategy, positioning itself as a one-stop shop for clients by offering multiple cybersecurity products on a single platform.

Source: Investopedia

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Manuel

Commodity

Political

Mexico will propose reinstating a North American steel committee to improve trade ties with the US and reduce reliance on Asian steel imports, according to a top trade official.

As part of its negotiations with the US over steel tariffs, Mexico plans to float the idea of bringing back a committee comprising steel companies in both Mexico and the US, as well as government trade officials from both nations, said Luis Rosendo Gutiérrez Romano, Mexico’s deputy economy minister for trade. While negotiations have focused on the bilateral relationship, the committee proposal envisions including Canada down the line.

The committee would be similar to the former North American Steel Trade Committee under NAFTA, the trade agreement prior to the current USMCA between Mexico, the US and Canada. It would be tasked with building a stronger regional ecosystem including private sector actors rather than relying solely on government negotiations, said Gutiérrez.

For example, the committee would consider measures aimed at increasing Mexico’s purchase of US steel to replace Asian imports. The move would potentially enable Mexico to increase tariffs on imported Asian steel, said Gutiérrez, who’s seen as Mexico’s second-most important commerce negotiator.

“It’s something that the United States views very favorably and we view very favorably, because we have to work hand in hand,” he said. “We are looking at a series of trade practices to strengthen ourselves as a region, to protect ourselves as a region and to work together on a common policy that strengthens our industries.”

To address US concerns, in addition to the joint committee proposal, Mexico has closed 1,062 so-called “phantom” Asian steel mills, which are buildings that are registered as mills but don’t contain any actual steel operations and function as cover for foreign imports. About 40% were linked to China, 10% to India and 6% to Iran.

The government is also exploring domestic policies to increase local steel consumption, said Gutiérrez, such as having Mexico’s construction industry commit to buying local steel to offset a potential 5% to 10% drop in exports to the US.

The proposals come amid negotiations between Mexico and the US over its tariff policies, including crippling 50% tariffs on Mexican steel and aluminum. The measures have forced some steel producers to pause planned investments, such as the cancellation of a $600 million special steel mill proposed by Brazilian steelmaker Gerdau SA.

Gerdau Drops Mexican Steel Mill Plan Amid Trump Tariff Turmoil

Gutiérrez said that Mexico is prioritizing negotiating a deal to reduce tariffs for autos, steel and aluminum. Whether planned steel investment is withdrawn or even increased will depend entirely on the final terms of a possible steel agreement, he said. Investment “could go elsewhere, but it could also double,” he said. “This is an agenda that concerns us a lot, and we will not take our eye off the ball so that we can reduce the tariff.”

Source: Bloomberg

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Manuel

Cryptocurrency

Polkadot is moving to reposition itself in the current bull market by introducing a dedicated unit to bridge its ecosystem with institutional capital.

On Aug. 19, the network announced the launch of Polkadot Capital Group, a capital markets-focused division designed to attract Wall Street investors and build stronger ties with traditional finance.

According to the network team, the initiative aims to capitalize on recent developments, including the growing crypto demand from institutional players and increasing clarity in the US regulatory environment.

The Polkadot team stated that the Polkadot Capital Group will help traditional finance participants navigate the network and identify investment opportunities.

David Sedacca, the division’s lead, said: “Our goal is to lead through data-driven education, driving adoption through knowledge transfer, and adapting in real-time to the dynamic priorities of institutional market participants.We envision a future where institutions clearly understand the unique value of our network and can engage confidently.”

Gavin Wood returns to Parity

This organizational pivot arrives simultaneously as a leadership change within Parity, the blockchain network’s developer.

On Aug. 13, Polkadot co-founder Gavin Wood confirmed he would return as CEO by the end of the month, replacing Björn Wagner, who has served in the role for three years.

Wood said his decision was driven by “leverage,” explaining that with the core architecture completed and markets gaining momentum, his leadership from the top seat would allow Polkadot to accelerate execution.

He added: “Nothing changes day-to-day. Teams, projects, and plans stay on course. But the bigger picture is evolving and you’ll start to feel that in the months ahead.”

Why Polkadot needs these changes

The timing of these changes reflects Polkadot’s recent struggles to compete with heavyweight rivals such as Ethereum and Solana.

The two ecosystems have captured billions of dollars in DeFi and stablecoin activity. By contrast, Polkadot hosts only about $88 million in stablecoins, a fraction of its competitors’ figures.

Moreover, current market forces have amplified these Polkadot challenges.

While Ethereum has risen nearly 30% this year thanks to rising institutional interest and Solana has benefited from strong memecoin activity, Polkadot’s DOT token has lost more than 40% of its value in 2025.

This underperformance has fueled concerns among backers, who see governance restructuring and capital market outreach as necessary steps to restore relevance.

Source: Cryptoslate

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Central Bank

Economic

The investment world will turn its attention away from Wall Street and toward Wyoming this week.

Some of the world’s leading economists and monetary policymakers will meet for the 48th annual Jackson Hole Economic Symposium. The long-standing conference has often served as an opportunity for key officials to make public statements that have implications for Americans' wallets.

This year is no exception. Markets and economists will closely follow Federal Reserve Chair Jerome Powell's remarks on Friday. Powell is expected to address potential next steps for the central bank as it decides whether or not to cut its influential interest rate.

Several other policymakers are expected to speak at the three-day event, which brings together representatives of central banks from nearly 40 countries to meet with other business and economic leaders. This year’s theme is “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy."

Sponsored by the Kansas City Federal Reserve, the meeting has been hosted at Jackson Lake Lodge for most of its history. The National Park Service provides a mountain backdrop for the 120 people who attend every year.

Here’s more about what to expect from this year’s symposium.

Fed Chairs Have Made Important Remarks During Historic Periods

When former Federal Reserve Chair Paul Volcker spoke at the event in 1982, he shifted the conference’s focus from agricultural issues. He started a tradition of the Fed chief addressing the meeting each year.

Over the years, the meeting has featured important speeches that have marked a turning point for the economy. Volcker used his remarks to defend his interest rate policy as the central bank fought record inflation in the early 1980s, while former Chair Alan Greenspan addressed issues with the 1990s tech bubble when he spoke there.

Amid the 2008 financial crisis, then-Chair Ben Bernanke addressed key monetary policy issues at the conference.

The conference is no longer focused solely on U.S. economics. European Central Bank President Christine Lagarde is among the speakers scheduled for this year’s conference.

Interest Rates Will Likely Be at the Top of the Agenda for Powell

Powell’s comments will focus during this year's conference as investors await clarity on the Fed’s policy path ahead.

Recent inflation readings have shown price pressures remain above the Fed’s target of 2%, while worries about a weakening labor market intensify. While most investors believe the Federal Reserve will make its first interest rate cut when it next meets in September, Powell’s comments could provide some insight into how the board will move.

“With markets pricing in a quarter-point cut for September, and some even expecting a bigger move, the Fed chief will use this platform to appropriately set forward guidance and outline his views on inflation and the labor market,” wrote BMO Senior Economist Priscilla Thiagamoorthy.

Powell Expected to Weigh In on Fed’s Decision-Making Playbook

Powell will also likely address another key issue for the Federal Reserve. The title of his speech indicates he will discuss the central bank’s framework for analyzing and acting on economic data.

The Fed's policymaking committee updates the framework periodically; the most recent iteration was established in 2020. So far this year, the Fed has been analyzing its current strategy and taking feedback. It is looking to complete its review by late summer and will then assess its findings.

A team of analysts at Deutsche Bank wrote that the current framework may have slowed the Federal Reserve's response to the 2022 spike in inflation. They said that could influence Powell's take on the framework.

“[We] expect Powell’s speech to call for rolling back the 2020 modifications,” the note said.