Financial markets rally after Trump announces tariff deal with Japan
Share prices rose sharply in Tokyo, where the Nikkei index of leading Japanese companies increased by 3.5%. European markets followed, with the FTSE 100 gaining 0.5% to hit a record high. US markets were expected to post further gains on opening later on Wednesday.
Shares in Japanese carmakers rallied sharply. Shares in Toyota, the world's biggest carmaker, surged by more than 14% while there were also sharp gains for Honda, Mazda and Subaru. London-based companies with the highest exposures to US tariffs – including GSK, AstraZeneca and Diageo – were among the biggest risers on the FTSE 100.
'News of a trade agreement between the US and Japan is fostering optimism among investors that further deals might be reached before punishing tariffs come into force,' said Russ Mould, the investment director at the stockbroker AJ Bell.
Under the deal announced late on Tuesday, Japanese imports to the US will incur a 15% tariff, a reduction on the 25% level Trump had threatened to impose from 1 August. The levy, paid by US importers, remains above the 10% 'baseline' global tariff, which had been imposed by Washington while the two countries negotiated.
The Japanese car industry – which accounts for 8% of jobs in Japan – had been left reeling by the threat of a 25% tariff on shipments to the US market. Vehicles and automotive parts account for more than a quarter of all Japanese exports to the US.
Trump claimed the deal would open the Japanese market to US products including cars, trucks, rice and certain agricultural products – many of which had proved to be a sticking point in negotiations.
The deal with Japan followed an agreement with the UK in May as the first major country to reach a deal with the White House, which included limiting an increase in US tariffs on most British goods to 10%.
Financial markets were thrown into a tailspin by Trump's 2 April 'liberation day' tariff announcement, after the US president unveiled blanket levies of 10% and higher individual rates of up to 50% on dozens of markets – including those of economic allies and rivals alike.
After Trump paused the higher tariff rates for 90 days to allow for negotiations with trading partners after a dramatic sell-off in the US bond market. The markets staged a recovery, as investors bet that Washington would ultimately back down from the toughest measures.
Investors latched on the president's reluctance to see through extreme threats by betting that 'Trump Always Chickens Out', or Taco for short, in a Wall Street maxim influencing trading decisions.
Economists said the deal with Japan, which is the world's fourth-largest economy and is the US's fourth-largest import market, could be the prelude to further progress in negotiations with other big trading partners including the EU.
Shares in EU carmakers rallied on Wednesday, with Volkswagen up by more than 5% as traders bet the US-Japan deal could be a blueprint for an agreement between Washington and Brussels. Trump has set a deadline of 1 August for reaching a deal with the EU and other trading partners.
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Washington also struck a deal with the Philippines on Tuesday, while the US Treasury secretary, Scott Bessent, has said talks would resume with China next week before the 12 August deadline Trump has set for a tariff agreement with the world's second-largest economy.
However, investors warned that the tariff rates on US imports were higher under the deals than they were before Trump entered the White House – fuelling inflationary pressures for American households and rattling global supply chains.
'Why are the markets jubilant this morning? Because even a higher tariff is preferable to continued uncertainty,' said George Lagarias, the chief economist at the financial services company Forvis Mazars.
'But this is hardly a catalyst for long-term optimism. If the deal with Japan is the standard by which the negotiation with the EU will go, then investors and businesses should begin to price in a deterioration of the macroeconomic backdrop.'
The Japanese prime minister, Shigeru Ishiba, said the deal was 'precisely the result of my consistent advocacy and strong lobbying of the US since I proposed 'investment over tariffs' to President Trump at our White House summit in February'.
Ishiba denied reports he planned to announce his resignation after his coalition lost its upper house majority this week.
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