Japan and India, two of Asia’s economic giants, find themselves at a crossroads in 2025 as global trade tensions and shifting economic currents force both countries to rethink their growth strategies. While Japan is pivoting towards resilient domestic demand amid export headwinds, India is plotting a path of diversification and self-reliance in the face of steep U.S. tariffs. The choices made in Tokyo and New Delhi could reshape not only their own prospects but also the broader Asian investment landscape.
Japan’s economy, long defined by its powerhouse export sectors—think cars, machinery, and electronics—has experienced a dramatic divergence over the past two years. According to AInvest, exporters have stumbled under the weight of trade barriers, supply chain snags, and wavering global demand. In sharp contrast, Japan’s service sector and capital spending have become beacons of stability, signaling a structural shift that is redrawing the country’s investment map.
The numbers tell a compelling story. As of the first quarter of 2025, the service sector accounted for a whopping 71.4% of Japan’s GDP. It expanded at a 0.6% annualized rate, buoyed by robust domestic demand and a resurgence in inbound tourism. The au Jibun Bank Japan Services PMI hit 51.7 in June 2025—its third straight month of growth—indicating a business climate that’s not just surviving but actively planning for expansion and hiring. The labor market remains tight, with unemployment at just 2.5%.
Much of this resilience can be traced to government efforts to stoke domestic consumption, from tax-free shopping programs to regional tourism campaigns. But it’s inbound tourism that’s truly stealing the spotlight. In 2024, Japan welcomed 36.9 million international visitors—a 16% jump compared to pre-pandemic levels. These travelers spent a staggering JPY 8.1 trillion (USD 53.3 billion), funneling much of their cash into Tokyo, Osaka, and Aichi, which together captured 70% of tourist activity. The Japan Tourism Agency (JTA) isn’t resting on its laurels, either; it aims to attract 60 million visitors and generate JPY 15 trillion in tourism-related spending by 2030, with a focus on immersive regional experiences and luxury travel.
Capital spending, often a laggard in times of uncertainty, has surprised many. In the second quarter of 2025, Japan’s capital expenditure grew by 1.3% year-on-year, easily outpacing the 0.5% forecast. According to the Bank of Japan’s Tankan survey, large firms plan to ramp up investment by 11.5% in the current fiscal year, channeling funds into software, urban redevelopment, and green infrastructure. These trends suggest that Japanese corporations are betting big on domestic innovation and sustainability, even as exports falter.
But it’s not all smooth sailing. Export-linked sectors are feeling the pinch. Automotive exports to the U.S. plummeted 24.7% year-on-year in May 2025, battered by a 25% tariff and production halts stemming from issues like Toyota’s certification scandal. Industrial output fell 2.3% in 2024, with machinery and electronics exports also sliding. Trade tensions with the U.S.—exacerbated by President Donald Trump’s tough stance—have further clouded the outlook, with the threat of additional tariffs and persistent uncertainty weighing on corporate confidence. While Japan’s manufacturing prowess is undiminished, the path forward for exporters remains fraught with risk.
For equity investors, the message is clear: focus on sectors tied to domestic demand. Tourism, hospitality, and retail are outshining their export-dependent peers. Companies like Japan Travel, ANA Holdings, and regional hotel chains such as Hoshinoya are riding the inbound tourism wave. Retailers like Uniqlo (Fast Retailing) and luxury brands such as Takashimaya are leveraging Japan’s reputation for quality and innovation. Meanwhile, firms in urban redevelopment and renewable energy, like Mori Building and SoftBank Energy, stand to benefit from government subsidies and the green transition. Export-heavyweights such as Toyota and Honda, while still formidable, face a more uncertain road ahead unless trade frictions ease and global demand rebounds.
Across the East China Sea, India is confronting its own set of trade challenges. On August 15, 2025, Harsh Goenka, chairman of RPG Enterprises, took to social media to lay out a robust 10-point plan for countering the U.S.’s newly imposed 50% tariff on Indian goods. The tariffs, which Washington says are a response to New Delhi’s oil and weapons trade with Moscow, have been condemned by Indian officials as “unfair, unjustified, and unreasonable.”
Goenka’s blueprint is both defensive and forward-looking. He urges India to “boost tourism earnings aggressively” using global campaigns, visa-on-arrival schemes, and cleaner tourist spots. He recommends creating a fund to help exporters find new markets, and calls for deeper trade ties with the EU, ASEAN, Africa, and Latin America to loosen the country’s reliance on the U.S. Goenka also champions high-value service exports—IT, consulting, fintech—attracting manufacturing shifting out of China, and incentivizing domestic R&D to develop import substitutes. On the agricultural front, he advocates for expanding exports through value-addition and branding, as well as promoting Indian culture, wellness, and Ayurveda exports. Rounding out his plan, he highlights the need to build logistics and port efficiency to cut export costs. As Goenka puts it, “Tariffs can block goods, not our resolve.”
The government is echoing this spirit of resilience. In a recent speech, Prime Minister Narendra Modi doubled down on economic self-reliance, lauding India’s advances in semiconductors, energy, and indigenous innovation. He coined the phrase “Daam kam, par dum zyada”—meaning “Our products may be priced low, but they should have high value”—as a rallying cry for globally competitive quality. Modi called for support of homegrown social media platforms, jet engine manufacturing, and independence in critical sectors like solar panels and raw materials for electric vehicles. Warning against the perils of overdependence on imports, he urged traders to promote local products and citizens to take pride in what India makes, saying, “We will use it not out of compulsion, but as a source of strength.”
Both industry and government in India are now pushing for a blend of defensive measures—such as seeking relief from tariffs—and aggressive market expansion. The focus is on diversification, value-addition, and innovation, with an eye toward building a more resilient and globally competitive economy.
Japan and India are, in many ways, charting parallel courses: both are seeking to reduce vulnerability to global trade shocks by bolstering domestic demand, investing in innovation, and expanding into new markets. The difference lies in the details—Japan’s pivot is driven by the resilience of its service sector and capital spending, while India’s strategy is shaped by a mix of government resolve, business ingenuity, and the urgent need to respond to external trade pressures.
As the world watches, the resilience and adaptability of these two nations may well set the tone for the next chapter in Asian economic growth. For investors and policymakers alike, the lesson is clear: in an era of uncertainty, those who can pivot quickly and build on their domestic strengths will be best positioned to thrive.
