Economic Profit Decline Expected for Leading Japanese Companies During the April-June Quarter
In the second quarter of 2025, the impact of U.S. tariffs and the yen's appreciation on major Japanese automakers was significantly negative, leading to substantial profit declines.
The leading Japanese automaker, Toyota, reported a 37% drop in Q2 profit, falling from 1.33 trillion yen ($5.7 billion) in the previous year to 841 billion yen ($5.7 billion). This decline was primarily driven by U.S. tariffs, which cost Toyota an estimated $9.5 billion annually, and unfavorable exchange rates linked to the strong yen.
Honda's Q2 profit was cut by half, falling to 196.7 billion yen ($1.3 billion) from 394.7 billion yen a year earlier. The 25% tariffs on vehicle exports to the U.S. represented a negative impact of about 450 billion yen ($3 billion). While U.S. sales were strong, the tariffs reduced profitability, and global sales slightly declined.
Overall, Japanese automakers faced a $5.3 billion profit hit from U.S. tariffs for the April-June quarter, contributing to an overall 12% year-over-year decline in net profit among Japanese listed companies. The strong yen compounded these challenges by making exports more expensive and imports cheaper, thereby hurting profit margins in export-driven industries like automobiles.
As a result of these pressures, many automakers accelerated investments in U.S. manufacturing to mitigate tariff exposure. Despite a U.S.-Japan trade agreement in July 2025 reducing auto tariffs to 15%, the Q2 results reflected the accumulated negative effects of the higher tariffs and currency movements.
The decline in the overall profits at the listed companies was largely due to a drop in the automobile sector. The data collection for this expectation was done by SMBC Nikko Securities Inc. As of Thursday, 823 out of 1,146 firms on the TOPIX index on the Tokyo Stock Exchange have announced their earnings for April-June, with 323 firms yet to release their results.
The combined net profits of all major Japanese listed companies posted a decline of 10.2% compared to the previous year, amounting to 11,277.3 billion yen. The earnings announcements by these firms cover the period April-June, and the percentage of firms that have announced their earnings, as of Thursday, is 71.8%.
In summary, the U.S. tariffs caused multibillion-dollar profit hits on Japanese automakers, while the strong yen further eroded earnings by undermining export competitiveness during Q2 2025. Major companies like Toyota and Honda experienced steep profit declines directly linked to these factors.
- In the aerospace industry, some companies might consider diversifying their policies to offset the financial impact of trade disputes and currency fluctuations, as seen in the automotive sector.
- The significant drop in profits reported by major Japanese automakers in Q2 2025 highlights the need for financial regulations that mitigate the negative effects of tariffs on specific industries, such as automobiles.
