Tokyo stocks fall for another day as reality of Trump tariffs sets in

Japan Times

04-04-2025

Japanese stocks continued to decline and the yen remained strong for another day as the world processed a sudden and unexpected upending of the global trade order.
The 225-issue Nikkei stock average fell 2.75% on Friday — following a 2.77% loss the previous day — slipping below the 34,000 level for the first time since August last year. The benchmark index had been moving between 38,000 to 39,000 up until February, but has lost more than 10% since then.
Global financial markets have been rattled by sweeping tariffs announced Wednesday in Washington by U.S. President Donald Trump, in which new duties were placed on nearly every country, with some hit particularly hard.
Given that Japan is a close ally of the U.S., the expectation was that Trump might go easy on it. But the U.S. levied a surprising 24% rate on the country. This followed new 25% tariffs on vehicles and auto parts.
Auto stocks have been hit hard, with Toyota, Honda and Nissan now trading at their lowest so far this year.
As the possibility of a recession in the United States increases and as investors seek a haven from the global turmoil, the yen rallied into the ¥145-to-the-dollar range and to levels not seen in six months.
Some analysts said financial markets would likely be volatile in the short term, but their longer-term outlook remains optimistic.
"Markets tend to quickly price in negative scenarios, but I believe there is no need for excessive pessimism," Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, wrote in a report released on Thursday. 'It is unlikely that this scale of increases in tariffs will be imposed for a long period of time.'
It seems Trump's intention is to set a strict policy at the outset to secure an advantage in upcoming negotiations, Ichikawa said.
'It is conceivable that the United States will ease the tariffs depending on negotiations with other countries. Thus, the focus is expected to be on the moves of the trading partners,' he said. 'If other nations choose to introduce retaliatory tariffs, President Trump could further escalate tariff increases, which would worsen the situation. But if negotiations between the United States and other countries progress, the tariffs may be adjusted.'
When market chaos is caused by man-made policies, not by phenomena such as a financial meltdown, it can be calmed down by man-made policies, Ichikawa added.
If the tariff issue persists for an extended period of time, the Japanese economy would face a tough time, said Shotaro Kugo, a senior economist at the Daiwa Institute of Research.
"A major bottleneck is that there's limited room for rate cuts by the Bank of Japan," he said.
Japan's current rate is set at 0.5%, which is much lower than other developed nations, so it's unlikely that the BOJ could deliver sufficient monetary easing to stimulate the economy, Kugo said.
The Japanese economy tends to be vulnerable to downturns in the global economy. In addition to limited policy response options, it is likely to face a double whammy of declining overseas demand and a stronger yen, Kugo said.
'Resolving the issue through negotiations will be the key going forward,' he added.