Japan's Nikkei surges to one-year peak, bonds slide on US trade deal
The Nikkei (.N225), opens new tab rallied as much as 3.3% to 41,070.91, its highest since July last year. The Tokyo Stock Exchange's transport equipment index (.ITEQP.T), opens new tab soared 10.3%, with Toyota Motor (7203.T), opens new tab surging more than 13%.
The trade deal reduced economic uncertainty, bolstering the case for the Bank of Japan to resume raising interest rates.
Traders sold Japanese government bonds, pushing two-year yields up by 7 basis points (bps) to 0.82%, the highest since April 2, when U.S. President Donald Trump shocked markets with his aggressive "Liberation Day" tariff announcement.
Markets largely shrugged off a media report that Japanese Prime Minister Shigeru Ishiba would step down by the end of August.
Ishiba is facing growing opposition from within his Liberal Democratic Party for his vow to stay in power despite the ruling coalition's defeat in Sunday's upper house election.
The yen was last down about 0.2% at 146.96 per dollar .
Trump said on Tuesday the U.S. and Japan had struck a trade deal that includes a 15% tariff that will be levied on U.S. imports from the Asian country, down from a threatened tariff of 25%.
Industry and government officials briefed on the agreement said the deal also lowers the tariff to 15% from 25% on Japanese autos, which account for more than a quarter of the country's exports to the U.S.
"It is commendable that the 25% baseline tariff was avoided," said Norihiro Yamaguchi, senior Japan economist at Oxford Economics in Tokyo. "Lowered uncertainty will be welcomed in the equity market."
Bank shares gained, sending the TSE's banking index (.IBNKS.T), opens new tab up 4.5%.
The 10-year JGB yield jumped 9.5 bps to 1.595%, matching last week's 17-year high.
Ten-year Japanese government bond futures tumbled as much as 1.04 yen to 137.56 yen, their lowest since March 28.
Deputy BOJ Governor Shinichi Uchida said the central bank needs to focus on downside risks to the economy. His comments came ahead of a BOJ policy meeting next Wednesday and Thursday.
"I don't think this (trade deal) alone will lead to a Bank of Japan rate hike next week, but the possibility of a rate hike between September and October has increased," said SMBC chief currency strategist Hirofumi Suzuki. "This will create pressure to buy the yen."
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