Nikkei surges in boost to Asia as Trump announces Japan trade deal
President Donald Trump late on Tuesday said a trade deal with Tokyo will include Japan paying a lower 15 per cent tariff on shipments to the US It followed an agreement with the Philippines that will see the US collect a 19 per cent tariff rate on imports from there.
Trump also said representatives from the European Union were coming for trade negotiations on Wednesday. That stirred hopes for a deal with Europe, as markets were worried about broader EU countermeasures amid receding hopes of a deal with Washington.
EUROSTOXX 50 futures rose 1 per cent, while Wall Street futures were up about 0.1 per cent.
"Expectations for a breakthrough (on the US-Japan talks) were low, so Trump's announcement delivers a mild upside surprise — providing near-term relief for Japanese equities," said Charu Chanana, chief investment strategist at Saxo.
"Strategically, the deal allows Japan to sidestep immediate tariff escalation, while Trump's attention shifts elsewhere."
Japan's Nikkei climbed over 3 per cent as shares of automakers surged on news the deal would also lower the auto tariff to 15 per cent, from a proposed 25 per cent. Mazda Motor rallied 17 per cent while Toyota Motor jumped 13.6 per cent.
South Korean automakers also jumped as the Japan deal fuelled optimism over potential progress in tariff negotiations between South Korea and the United States.
Japanese government bonds slid, with the yields for 10-year JGBs up a whopping 8.5 basis point at 1.585 per cent, while the reaction in the yen was more muted, trading slightly weaker at 146.99 per dollar.
Investors took in stride a media report that Japanese Prime Minister Shigeru Ishiba would step down by the end of August. Ishiba has been facing growing opposition from within his party for his vow to stay in power despite the ruling coalition's defeat in Sunday's upper house election.
Saxo's Chanana said Ishiba's departure removes a source of political fragility and sets the stage for leadership more aligned with pro-market policies and closer US ties.
"His exit is also seen as clearing a path for continuity in Japan's accommodative fiscal and monetary stance."
In another positive development, US and Chinese officials will meet in Stockholm next week to discuss an extension to the August 12 deadline for negotiating a trade deal, Treasury Secretary Scott Bessent said.
Chinese blue-chips rose 0.46 per cent and Hong Kong's Hang Seng index gained 0.7 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.8 per cent.
Overnight, Wall Street closed mixed as investors assessed a spate of earnings that pointed to signs that Trump's trade war is hitting corporate profit margins. General Motors tumbled 8.1 per cent after the automaker reported a US$1 billion hit from tariffs to its quarterly results.
Investors are now waiting for results from Tesla and Google's parent Alphabet - the Magnificent 7 stocks that have driven much of the market rally fuelled by AI optimism.
In the foreign exchange market, moves were muted with the dollar holding onto overnight losses along with lower Treasury yields. The dollar index was flat at 97.45, having slipped 0.4 per cent overnight for its third straight day of declines.
The euro dipped 0.1 per cent to US$1.1739 after rising 0.5 per cent overnight.
Benchmark 10-year US Treasury yields ticked up 2 basis points to 4.3559 per cent, after slipping 3 bps overnight, as Trump continued to lash out at Federal Reserve Chair Jerome Powell for not cutting interest rates, although Bessent said there was no need for him to step down immediately.
Bessent did say the Fed's vital independence on monetary policy is threatened by its "mandate creep" into non-policy areas and he called on the US central bank to conduct an exhaustive review of those operations.
Oil prices gained a little. US crude rose 0.4 per cent to US$65.60 per barrel, while Brent was at US$68.88 per barrel, up 0.4 per cent.
Spot gold prices were steady at US$3,429 an ounce.
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