Tokyo's Nikkei Surges as Japan-US Trade Deal Sparks Asian Rally
Tokyo Stocks Surge on Trade Deal News
Tokyo's stock market experienced a significant rise on Wednesday, fueled by the successful negotiation of a trade deal between Japan and the United States. This agreement aimed to reduce tariffs imposed by former President Donald Trump, particularly those affecting the vital automotive sector. The news brought a wave of optimism among investors, who were also encouraged by recent agreements between Washington and other countries such as Indonesia and the Philippines. These developments sparked hopes that more nations might follow suit in the near future.
Despite the absence of major deals before Trump’s August 1 deadline, equity markets have been showing consistent growth over the past few weeks. This trend reflects a growing belief that governments will eventually reach compromises on trade issues. However, investor sentiment in Tokyo had been somewhat muted due to the repeated efforts of Japanese trade envoy Ryosei Akazawa, who traveled to Washington seven times since April in an attempt to convince Trump to eliminate the tariffs.
The U.S. president announced a "massive" deal on Tuesday that would lower tariffs on certain Japanese goods from 25 percent to 15 percent. Additionally, Japan agreed to reduce tolls on its automobiles, which account for eight percent of Japanese employment, to 15 percent, matching the rate for other countries. Trump highlighted the deal on social media, stating that Japan would invest $550 billion into the United States, with 90% of the profits going to the U.S. economy. Although he did not provide specific details about the investment plan, he claimed the deal would create hundreds of thousands of jobs.
Japanese Prime Minister Shigeru Ishiba expressed satisfaction with the agreement, calling it a first-of-its-kind reduction in automobile and auto parts tariffs without volume limits. Akazawa, the Japanese trade envoy, celebrated the achievement on social media, though he later clarified that the 50 percent levies on steel and aluminum were not part of the deal.
The positive news led to a surge in trading activity, pushing the Nikkei index up more than three percent to a one-year high. Major automakers like Toyota, Mitsubishi, and Nissan saw their stock prices jump significantly, with Toyota rising over 14 percent and Nissan increasing by more than eight percent.
Lorraine Tan, director of equity research at Morningstar, noted that while the reciprocal tariff rate of 15 percent is expected to have limited direct impact on most industries in Japan, the key risk remains the potential indirect effects of slower global demand due to ongoing tariff uncertainty.
Mixed Reactions and Cautious Optimism
Despite the positive developments, analysts remained cautious about the long-term implications of the deal. Stefan Angrick from Moody's Analytics pointed out that Japan's apparent "win" is not entirely clear-cut. He noted that Japan faced U.S. tariffs in the low single digits before April and a 10 percent tariff since mid-April. It remains uncertain when the new tariff rate will take effect, making it difficult to assess the economic ramifications at this stage.
Trump also announced an agreement with the Philippines to lower tariffs on Philippine goods by one percentage point to 19 percent, while tariffs on Indonesian goods were reduced from 32 percent to 19 percent. These announcements contributed to increased buying interest in markets across Asia, including Hong Kong, Sydney, Singapore, Taipei, Seoul, Mumbai, and Bangkok. Shanghai, however, remained flat.
In London, the FTSE 100 opened in the green, alongside Paris and Frankfurt. The gains came after a positive day on Wall Street, where the S&P 500 reached another peak, although the Nasdaq ended a six-day streak of record highs.
Investors are now closely watching the release of earnings reports from tech giants such as Alphabet, Tesla, and Intel. Meanwhile, the U.S. Treasury Secretary is set to meet with Chinese counterparts in Stockholm as another deadline approaches for U.S. levies on China to return to higher levels.
Market Performance and Key Figures
As of around 0810 GMT, several key financial indicators showed positive trends:
- Tokyo - Nikkei 225: Up 3.5 percent at 41,171.32 (close)
- Hong Kong - Hang Seng Index: Up 1.6 percent at 25,538.07 (close)
- Shanghai - Composite: Flat at 3,582.30 (close)
- London - FTSE 100: Up 0.4 percent at 9,059.96
- Dollar/yen: Up at 146.79 yen from 146.66 yen Tuesday
- Euro/dollar: Down at $1.1734 from $1.1755
- Pound/dollar: Up at $1.3539 from $1.3532
- Euro/pound: Down at 86.67 pence from 86.84 pence
- West Texas Intermediate: Up 0.1 percent at $65.35 per barrel
- Brent North Sea Crude: Up 0.1 percent at $68.65 per barrel
- New York - Dow: Up 0.4 percent at 44,502.44 (close)