Nikkei Rises as Trump Unveils Japan Trade Deal Boosting Asia

Global Markets React to Trump's Trade Deals and Uncertainty

Asian markets experienced a positive shift on Wednesday, with Japanese shares leading the charge. This surge was largely attributed to President Donald Trump's announcement of a trade deal with Japan, which sparked optimism about potential future agreements. The news helped ease some of the concerns stemming from recent U.S. earnings reports that highlighted the negative impact of higher tariffs on corporate profits.

Trump's statement late Tuesday indicated that a trade agreement with Tokyo would involve Japan paying a reduced 15% tariff on shipments to the U.S. This follows a previous agreement with the Philippines, where the U.S. will collect a 19% tariff rate on imports from there. Analysts suggest that while expectations for a major breakthrough were low, the announcement provided a mild positive surprise for Japanese equities.

Charu Chanana, chief investment strategist at Saxo, noted that this deal allows Japan to avoid immediate tariff escalations, while Trump's focus shifts to other areas. The Nikkei index jumped 2.6% on Wednesday, with automakers benefiting significantly as the auto tariff was lowered from a proposed 25% to 15%. Mazda Motor saw a 17% rise, and Toyota Motor surged 11%.

The Japanese government bonds market also reacted, with yields on 10-year JGBs increasing by 8.5 basis points to 1.585%. This movement was driven by reduced uncertainty, which may pave the way for the Bank of Japan to resume interest rate hikes. However, the yen's response was more subdued, with a small 0.1% gain to 146.42 per dollar. Traders are closely watching developments regarding Japanese Prime Minister Shigeru Ishiba, who is considering whether to step down after assessing the outcome of the trade deal.

In addition to the Japan deal, Trump mentioned that representatives from the European Union are set to engage in trade negotiations on Wednesday. This has raised hopes for a potential deal with Europe, as markets had been concerned about broader EU countermeasures amid signs of a possible trade agreement with Washington. EUROSTOXX 50 futures rose 0.8%, and Wall Street futures were up approximately 0.1%.

Another positive development involves U.S. and Chinese officials meeting in Stockholm next week to discuss an extension of the August 12 deadline for negotiating a trade deal. Treasury Secretary Scott Bessent confirmed this meeting. Chinese blue-chips edged up 0.3%, and Hong Kong's Hang Seng index gained 0.5%. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.6%.

On the U.S. market, Wall Street closed mixed as investors evaluated a series of earnings reports that revealed the ongoing impact of Trump's trade war on corporate profit margins. General Motors fell 8.1% after reporting a $1 billion hit from tariffs in its quarterly results. Shares of RTX dropped 1.6% due to tariff impacts, despite strong demand for its engines and aftermarket services.

Investors are now eagerly awaiting results from Tesla and Google's parent company, Alphabet—two key stocks that have driven much of the market rally fueled by AI optimism.

In the foreign exchange market, movements have been relatively muted. The dollar held onto overnight losses alongside lower Treasury yields. The dollar index remained flat at 97.45, having declined 0.4% overnight for its third consecutive day of declines. The euro dipped 0.1% to $1.1739 after rising 0.5% overnight.

Benchmark 10-year U.S. Treasury yields increased by 2 basis points to 4.3559%, following a decrease 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 Powell to step down. However, Bessent did express concerns about the Fed's "mandate creep" into non-policy areas and called for a thorough review of those operations.

Oil prices saw slight gains on Wednesday. U.S. crude rose 0.4% to $65.60 per barrel, while Brent crude reached $68.88 per barrel, up 0.4%. Spot gold prices remained steady at $3,429 an ounce.