DBT Bureau
Pune, 14 July 2025
As the US prepares to impose 25% tariffs on Japanese goods from August 1, 2025, threatening to erode export earnings and slow growth, and with India projected to overtake Japan as the world’s fourth-largest economy, Asia’s trade dynamics are undergoing a dramatic shift. Against this backdrop, Rubix Data Sciences has released its latest Country Insights Report: Japan, offering a timely analysis of how Japan is navigating these challenges and how its deepening partnership with India is becoming increasingly strategic.
Despite decades of economic strength, Japan is facing headwinds. Growth in 2024 slowed to just 0.1%, and while corporate investments in chipmaking and record-breaking Mergers and Acquisitions (M&A) have offered some support, weak household spending and rising import costs have weighed heavily. Inflation, once dormant, remains above target at 3.7%, with the Bank of Japan cautiously raising rates.
The US’ 25% tariffs on Japanese exports, scheduled to take effect August 1, 2025, could slash Japan’s GDP growth by up to 0.26 percentage points and cut exporter profits by 25%, particularly in the critical automotive sector. “The trade deficit has doubled in three years, and new tariffs are set to deepen the strain,” the report warns.
Notably, the report highlights how Japan’s corporate sector is responding with a wave of M&A activity, driven by governance reforms, private equity interest, and undervalued assets. Japan recorded its busiest year for M&A since 1985 in 2024, with deal value surging 44% to over USD 230 billion, and the momentum has continued into 2025. Landmark transactions, such as Nippon Steel’s acquisition of U.S. Steel and Bain Capital’s record healthcare deal, illustrate how Japanese firms are pursuing growth abroad and strengthening competitiveness at home.
India Steps Up
In parallel, India is projected to surpass Japan’s GDP in 2025, signalling a tectonic shift in Asia’s economic hierarchy. The report notes India’s GDP edging ahead to USD 4,187 billion, narrowly overtaking Japan.
Yet, rather than competitors, the two nations are increasingly strategic partners. Bilateral trade between India and Japan grew at a 13% CAGR between FY2021 and FY2025 to cross USD 25 billion in FY2025, though India’s trade deficit with Japan has nearly doubled, reaching USD 12.7 billion.
Japan’s imports from India, buoyed by rising demand for automobiles and smartphones, grew at an impressive 8% CAGR between FY2021 and FY2025, while India’s imports from Japan grew by 15% CAGR during the same period, driven by steel, copper, and precious metals. Automobiles now account for 13% of India’s exports to Japan, a remarkable rise from just 1% four years ago, positioning India among Japan’s top five car suppliers.
Deepening Partnerships
The report also highlights how the India–Japan relationship is moving beyond trade to strategic collaboration across critical sectors. From the Semiconductor Supply Chain Partnership to joint green and digital development of India’s maritime infrastructure and islands, both nations are working closely on technology, defence, finance, and clean energy. Recent milestones include the co-production of next-generation defence systems, a landmark Japanese acquisition in India’s banking sector, and major investments in India’s EV and renewable ecosystems. This partnership is enabling India to strengthen its manufacturing capabilities while offering Japan alternative markets and supply chains amid rising global trade tensions.
Outlook
“The world’s fourth- and fifth-largest economies deepening their trade and strategic ties augurs well for Asia’s economic future. Our report shows how this partnership is unlocking concrete business opportunities, from rising Indian exports of automobiles and smartphones to Japan to record Japanese investments in India’s manufacturing, energy, and infrastructure sectors. Such a strategic collaboration is important to navigate global uncertainties and regional challenges,” said Mohan Ramaswamy, Founder and CEO of Rubix Data Sciences.
