What the Takaichi Administration Means for Used Car Exports

Introduction: What is the "Structural Transformation" the Takaichi Administration is Imposing on the Used Car Industry?

Hello everyone! As someone who has watched the Japanese economy closely for years, I believe the establishment of the Sanae Takaichi administration is likely to be a game-changer for the used car export industry.

Prime Minister Takaichi's "Strategic Economic Policy," based on "responsible proactive fiscal spending," is not just about stimulating the economy. It’s a nation-wide grand strategy that prioritizes "economic security" and "diplomatic power." And that wave is relentlessly crashing down on our used car business.

The bottom line is that used car exporters are now facing two giant walls: "geopolitical risk" and "domestic compliance enforcement." But on the flip side, there's a chance to open a new frontier in the Asian market!

Here are the three major impacts we must be aware of to survive in this industry:

1. The Biggest Blow: The De Facto Closure of the Russian Market! In addition to gasoline and diesel vehicles over 1900cc, all hybrid (HV) and electric vehicles (EV)—Japan's pride—are now banned from export! The main stage for high-value vehicles is disappearing.   
2. No Escape! Super Tightening of Domestic Compliance! The government is getting serious about tackling the long-standing problem of inappropriate exports, such as "half-cuts" and "waste-like" scrap. Specifically, a nationwide monitoring system using electronic manifests is being considered , dramatically increasing costs and liabilities.   
3. The New Battlefield: A "Strategic Shift" to the Asian Market! Backed by PM Takaichi's active ASEAN diplomacy , customs procedures are being simplified, establishing Asia as a new growth market! However, intense competition is starting with a powerful rival: China's "zero-kilometer used cars".   

How do we cope with these drastic changes? Let's dive into the details!

The Takaichi Administration's "Strategic Economic Policy" and the New Rules of Trade

A. "Proactive Fiscal Spending" is a "Two-Handed Sword" for the Economy and Security!

The key philosophy of PM Takaichi's economic policy is "responsible proactive fiscal spending".⁵ This means intentionally allocating resources strategically for Japan's future, rather than just random spending, with the goal of achieving a stronger economy.

The comprehensive economic package is built on three pillars:

1. Addressing soaring prices and supporting livelihoods.
2. Crisis management investment and growth investment (supply chain resilience and digitalization).
3. Strengthening defense capabilities and diplomatic power (security-related export control and international cooperation).

The policies directly concerning used car exports relate mainly to Pillars 2 and 3. This indicates that the used car business is no longer governed solely by market forces but is managed as part of the country's national security strategy.

B. Why "Economic Security" Affects Used Cars

The Takaichi administration emphasizes strengthening defense capabilities in new domains like space, cyber, and drones. Amidst moves to strengthen information gathering (e.g., considering the establishment of a National Intelligence Agency ) and enact legislation like the Anti-Espionage Act, used car export management is no exception.

The expansion of restrictions against Russia is proof of this! It’s the result of fulfilling the international commitment made at the G7 Summit to "ensure that the export of all items critical to Russia's aggression is restricted". While a used car itself is rarely considered a dual-use item, the strong intent is to prevent the inflow of Japan's advanced electronic control technology (essential for HVs and EVs) to Russia, reflecting a comprehensive technology management strategy.

[Crucial] Geopolitical risk is no longer a temporary issue; it must be incorporated as a "permanent operating cost."

C. Policy Impact Matrix on the Used Car Sector

Let's check the matrix to see how the Takaichi administration's strategy impacts us.

Table 1: Policy Matrix of the Takaichi Administration and Its Impact on Used Car Exports

Takaichi Administration's Strategic Pillar	Relevant Policy Direction	Predicted Impact on Used Car Export Sector
Strengthening Economic Security	Stricter controls on strategic goods/technology outflow to specific countries	Expansion and strict enforcement of sanctions against Russia, restriction of vehicle types
Crisis Management/Growth Investment	Strengthening supply chains, promoting digitalization	Simplification of customs procedures in ASEAN markets, enhanced competitiveness
Strengthening Defense/Diplomacy	International collaboration (G7), stricter border control	Nationwide rollout of domestic and border measures against inappropriate exports (waste/dismantled cars)

This matrix clearly shows that the balance between "regulation" and "opportunity" is shifting significantly under the Takaichi administration.

Russian Market Nears Full Blockade! The Shocking Details of Export Restrictions

A. The Goal: Preventing High-Tech Flow in Line with G7 Coordination

The primary reason for the Japanese government's strengthened sanctions against Russia is coordination with the international community, particularly G7 nations. The G7 Summit statement in May called for expanding action to "ensure that the export of all items critical to Russia's aggression is restricted" , meaning the previous restriction on only high-end vehicles (over 6 million yen) was no longer sufficient.

The objective is to not only reduce Russia's war-fighting capacity but also to prevent the advanced technology that Japan excels in from flowing into Russia.

B. Shocking News! 1900cc+, HVs, and EVs are "Completely Out"

The impact of this latest round of sanctions is devastating. The related cabinet order is expected to be approved this month, and the rules are projected to take effect as early as August.

The following vehicles will be newly subject to restrictions:

1. Gasoline and diesel vehicles with an engine displacement exceeding 1900cc.
2. All hybrid vehicles (HVs)!
3. All electric vehicles (EVs)!

This is more than just a luxury vehicle restriction; it means wiping out the core segment of Japanese HVs that were highly popular and profitable in the Russian market. The fact that HVs and EVs are targeted "regardless" of engine size or price shows a clear technical control strategy aimed at preventing the outflow of Japan's sophisticated electronic control systems.

Table 2: Types of Vehicles Subject to New Sanctions and Risk Assessment

Category of Restriction	Engine Displacement/Type	Change from Previous Regulation	Immediate Industry Risk
Gasoline/Diesel Cars	Over 1900cc	General vehicles under 6 million yen added to the target	Suspension of exports for mid-to-high-end SUVs, large sedans, and some commercial vehicles
Hybrid Vehicles (HV)	All Displacements	All displacements newly targeted	Loss of the most profitable, high-value segment in Japanese used car exports 1
Electric Vehicles (EV)	All Displacements	All displacements newly targeted	Loss of a key future market for next-generation vehicle exports
Luxury Cars	Over 6 million yen	Continuously restricted	Limited impact (already applied)

C. Impact of Restrictions: The Most Profitable Segment Vanishes

The industry will lose more than just "volume" due to these restrictions. It will lose "gross profit margin." HVs were highly profitable due to their reliability and recent production years. With their main market gone, exporters must urgently review their revenue structure, rapidly liquidate inventory, and shift to alternative markets.

D. Beware of the "Bypass" Routes via Third Countries!

While re-exporting via third countries like Georgia, the UAE, or Kyrgyzstan may increase, given the Takaichi administration's strong commitment to security, international monitoring of Russia-bound exports via third countries will undoubtedly intensify. Relying on bypass routes significantly increases the risk of severe penalties for export control violations down the line. When developing alternative markets, securing a clean supply chain that can strictly prove that the final destination is not a sanctioned country is an absolute necessity to avoid geopolitical risks.

The Great Asian Market War Erupts: Opportunity and Threat

A. Aggressive PM Takaichi Diplomacy Makes ASEAN a "Super Priority Market"!

To offset the pain of losing the Russian market, the Japanese government is shifting its focus to the Asian market. PM Takaichi's unusual English speech at the ASEAN Summit in Malaysia  was a clear message that this region is positioned as a "super priority market" in Japan's economic and security strategy.   

As the government promotes the modernization of FTAs with Asian countries, the environment for Japanese exporters is expected to improve rapidly.

B. FTA Modernization May Drastically Simplify Customs Procedures

Trade agreements with ASEAN are being modernized, including elements directly benefiting the used car export sector : simplification of rules of origin, harmonization of tariff classifications, and, importantly, electronic customs procedures.   

This is good news for small-to-medium-sized exporters! The cumbersome paperwork and waiting times at customs will be reduced, leading to a significant decrease in indirect trade costs. As the integration of the ASEAN internal market progresses, an environment will be created where high-quality Japanese used cars can reach consumers in the ASEAN region more quickly and at a lower cost.   

C. The Threat of China's "Zero-Kilometer Used Cars"

While the environment in the ASEAN market improves, Japanese exporters face a new and powerful competitor: China, which is rapidly expanding its used car exports. Exports surpassed 410,000 units and $9 billion USD between January and May 2024—a stunning pace!   

The most alarming factor is the circulation of "zero-kilometer used cars"—a peculiar practice in the Chinese market. This refers to practically brand-new cars that are registered as "used cars" after registration, often with the plastic seat covers still on, to relieve manufacturer/dealer inventory pressure and meet sales targets. Since cars of virtually new quality are being supplied to the market at used car prices, Japanese exporters face a severe disadvantage in price competition.   

The Chinese Ministry of Commerce is trying to tighten regulations on these "zero-kilometer cars" , but the price competition in Asia is guaranteed to intensify in the meantime.   

D. The Lifeline: "Japan Quality" and the "High Compliance" Brand Strategy!

To win the competition, efficiency alone is not enough. We must strategically highlight the unwavering brand of "Japanese Quality" and "Strict Compliance."

While China's "zero-kilometer cars" are rooted in inventory manipulation, Japanese used cars go through strict legal processes (adherence to the Automobile Recycling Law) and reliable inspections. This transparency and trustworthiness is the greatest weapon for differentiation when appealing to new customer segments in Asia.

No More Room for Inappropriate Exports! Super Enforcement of Domestic Compliance

The Distinction Between "Used Car" and "End-of-Life Vehicle" Is Getting Serious!

As part of the Takaichi administration's "crisis management investment" , domestic monitoring, particularly against inappropriate exports of used vehicles, will be significantly strengthened.   

Specifically, vehicles that have undergone cutting, such as half-cuts, nose-cuts, or removal of major components like the engine or axle—which compromise the fundamental functionality of the automobile—will be deemed "End-of-Life Vehicles (ELVs)" rather than "used cars". This means they will be strictly managed as waste.   

Inappropriate practices like exporting vehicles without proper handling of refrigerants (CFCs) or airbags under the Automobile Recycling Law will no longer be tolerated.   

B. Half-Cuts Face "Export Stoppage" at Customs! The Shock of the Nationwide Monitoring Network

Cross-ministerial measures are advancing between the Ministry of Finance (Customs), the Ministry of the Environment, and the Ministry of Land, Infrastructure, Transport and Tourism  to prevent inappropriate exports.   

If a vehicle is declared as a used car but is confirmed by Customs to be a half-cut or other form visually identifiable as an End-of-Life Vehicle, the export will be strictly halted based on concerns about violations of the Waste Disposal and Automobile Recycling Laws.   

Crucially, there is ongoing consideration for the nationwide rollout of a monitoring system that utilizes the electronic manifest under the Automobile Recycling Law. This system, already successful in some regions, digitally centralizes the monitoring of improper dismantling and acts as a source countermeasure. If implemented nationwide, the liability of exporters will dramatically increase, requiring them to ensure compliance upstream in the supply chain.   

C. How Much Can Be Dismantled? The Permissible Scope is Limited!

Temporary parts removal to improve container loading efficiency is permitted only within a narrow scope, adhering strictly to the following requirements :   

1. The removal is necessitated for container loading, and the removed part is loaded into the same container as the vehicle.
2. The removal must be within a range that does not compromise the fundamental functionality of the vehicle.
3. The removal must be within a range that does not require specialized knowledge or skills related to dismantling.

Specific items deemed permissible include tires, mirrors, bumpers, hoods, and rear hatches/trunk lids. Removal beyond this scope is discouraged as it makes enforcing illegal dismantling domestically difficult. Furthermore, there is a clear warning that policy should not incentivize the export of items close to waste just to reclaim recycling fees.   

D. Towards a "Joint Investigation" Regime: Customs, Environment, and Police?

The Takaichi administration's focus on strengthening information gathering  will also affect domestic compliance. The nationwide electronic manifest monitoring system  will enable digital coordination between Customs (border control), the Ministry of the Environment (waste regulation), and the Police (enforcement).   

Exporters face the risk of retrospective checks on their partner dismantlers to ensure the proper disposal of refrigerants and airbags. To avoid unexpected export stoppages, investment in systems for due diligence and transparency throughout the upstream supply chain is becoming an absolute survival requirement.

Strategic Actions Used Car Exporters Must Take Immediately

A. Full Withdrawal from Russia and Market Diversification Strategy

Since the highly profitable Russian market is disappearing, exporters must execute a rapid market diversification strategy to minimize inventory risk.

• Prioritize ASEAN as the alternative market, establishing routes that maximize the utilization of the government-promoted trade simplification.   
• Rapidly redistribute non-sanctioned, lower-displacement/lower-price inventory (under 1900cc) to other emerging markets (Middle East, Africa, Latin America).
• Securing a clean export route that can strictly prove the final destination is not Russia is the top priority for business continuity.

B. Compliance is "Competitiveness," Not Just "Cost"!

Addressing domestic regulatory reinforcement is urgent.

• Completely eliminate the handling of cut vehicles like half-cuts, which qualify as "End-of-Life Vehicles," from the supply chain.   
• Strictly adhere to the permissible limits for temporary parts removal (tires, mirrors, etc. ) and conduct thorough audits to ensure compliance and avoid involvement in illegal dismantling aimed at reclaiming recycling fees.   
• In preparation for the nationwide electronic manifest rollout , introduce a supplier audit system and system investment that can digitally track and verify that partner dismantlers are properly processing refrigerants and airbags. Eliminating the risk of inappropriate exports is the core of future "Japan Quality."   

C. Digitalization and Efficiency Investment to Win in the Asian Market!

To establish competitiveness in the ASEAN market, leverage the government's FTA modernization  by accelerating internal digital investment.   

• Implement a digital trade platform capable of handling simplified rules of origin and electronic customs to drastically reduce lead times and administrative costs for ASEAN exports.
• Combine the cost competitiveness gained from this efficiency with the Japanese brand value of "High Quality/High Compliance" to establish a differentiation strategy against China's "zero-kilometer used cars".   

D. Policy Proposals: Industry Support to Seek from the Administration

Rapid geopolitical changes and regulatory strengthening place significant strain on SMEs. Industry associations should seek the following support measures within the framework of the Takaichi administration's "crisis management investment" :   

1. Market Transition Support: Expansion of trade insurance schemes to support the development of alternative markets (Middle East, Africa, Latin America) and subsidies for logistics development, countering the market loss from Russian sanctions.
2. Compliance Strengthening Support: Financial measures (subsidies, tax incentives) for SMEs' system implementation and audit regime setup costs associated with the nationwide electronic manifest rollout  and stricter supply chain audits.   

Conclusion: Navigating the Stormy Seas

The Japanese used car export sector under the Sanae Takaichi administration has officially transitioned into a "strategic industry centered on national security."

The closure of the Russian market is a long-term restriction based on diplomatic and security intentions to protect Japanese technology and uphold G7 coordination. The tightening of domestic compliance translates into a permanent increase in operating costs.   

However, for companies that navigate this storm and preemptively invest in compliance and digitalization, this period offers an opportunity to establish a new winning segment based on "high quality and high trustworthiness" within the huge ASEAN market.

This moment demands "strategic investment" to fundamentally transform the business structure, moving beyond short-term profit pursuit. Let's embrace the change and take bold steps forward!