Nikkei Rises as Trump Unveils Japan Trade Deal Boosting Asia
Japanese Shares Reach One-Year High Amid Trade Deal Optimism
Japanese shares experienced a significant surge, reaching a one-year high on Wednesday. This positive movement was driven by a trade deal between Japan and the United States that lowered tariffs on automobiles, alongside renewed hope for a potential agreement with the European Union, which also contributed to an increase in European stock futures.
President Donald Trump announced late Tuesday that a trade deal with Tokyo would involve Japan paying a reduced 15% tariff on shipments to the U.S. This development followed a similar agreement with the Philippines, where the U.S. would impose a 19% tariff on imports from there. Additionally, Trump mentioned that representatives from the European Union were set to arrive for trade negotiations on Wednesday, sparking optimism about a possible deal with Europe. Markets had been concerned about broader EU countermeasures amid fading hopes of a deal with Washington.
European stock futures, specifically the EUROSTOXX 50, rose by 1%, while Wall Street futures saw a modest increase of approximately 0.1%. Charu Chanana, chief investment strategist at Saxo, noted that expectations for a breakthrough in the U.S.-Japan talks were low, making Trump’s announcement a mild upside surprise that provided near-term relief for Japanese equities. She added that the deal allows Japan to avoid immediate tariff escalation, while Trump's focus shifts elsewhere.
The Nikkei index climbed over 3%, with automakers' shares surging due to the news that the auto tariff would be lowered to 15% from a proposed 25%. Mazda Motor saw a remarkable 17% increase, while Toyota Motor jumped 13.6%. South Korean automakers also benefited as the Japan deal fueled optimism about potential progress in tariff negotiations between South Korea and the U.S.
In the bond market, Japanese government bonds declined, with the yields for 10-year JGBs rising 8.5 basis points to 1.585%. The yen remained relatively stable, trading slightly weaker at 146.99 per dollar. Investors also took in stride a media report suggesting that Japanese Prime Minister Shigeru Ishiba would step down by the end of August. Ishiba has faced growing opposition within his party due to his commitment to remain in power despite the ruling coalition's defeat in Sunday's upper house election.
Saxo's Chanana commented that Ishiba's departure removes a source of political instability and paves the way for leadership aligned with pro-market policies and closer U.S. ties. She added that his exit is seen as clearing a path for continuity in Japan’s accommodative fiscal and monetary stance.
Another positive development involved U.S. and Chinese officials meeting in Stockholm next week to discuss extending the August 12 deadline for negotiating a trade deal. Treasury Secretary Scott Bessent highlighted this meeting. Chinese blue-chips rose 0.46%, and Hong Kong's Hang Seng index gained 0.7%. The MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.8%.
On Wall Street, the market closed mixed as investors evaluated a series of earnings reports indicating that Trump's trade war is affecting corporate profit margins. General Motors fell 8.1% after reporting a $1 billion hit from tariffs in its quarterly results. Investors are now awaiting results from Tesla and Google's parent company, Alphabet—key players in the market rally driven by AI optimism.
In the foreign exchange market, movements were limited, with the dollar holding onto overnight losses along with lower Treasury yields. The dollar index remained flat at 97.45, having dropped 0.4% overnight for its third consecutive day of declines. The euro dipped 0.1% to $1.1739 after rising 0.5% the previous night.
Benchmark 10-year U.S. Treasury yields increased by 2 basis points to 4.3559%, following a drop of 3 bps overnight. Despite Trump's continued criticism of Federal Reserve Chair Jerome Powell for not cutting interest rates, Bessent stated there was no immediate need for him to step down. However, Bessent did express concerns about the Fed's independence being threatened by "mandate creep" into non-policy areas, urging the central bank to conduct an exhaustive review of those operations.
Oil prices saw slight gains, with U.S. crude rising 0.4% to $65.60 per barrel and Brent oil reaching $68.88 per barrel, up 0.4%. Spot gold prices remained steady at $3,429 an ounce.