US-Japan Trade Deal Boosts Markets, Global Economy Avoids Worst Outcomes

The US and Japan have agreed to a trade deal, with the US agreeing to lower tariffs on Japanese cars. This deal has boosted markets worldwide, with stocks rising and government bond yields increasing. The EU has also welcomed the deal, but says it is focused on resolving trade issues with the US.

The United States and Japan have reached a significant trade agreement, with the U.S. agreeing to lower tariffs on Japanese cars. This deal has sparked a global market rally, with stocks surging and government bond yields increasing. The European Union has welcomed the agreement but remains focused on resolving its trade issues with the U.S.

President Donald Trump announced the trade deal on July 22, 2025, stating that Japan will pay a 15 percent tariff on goods imported to the U.S. in exchange for a $550 billion investment in the U.S. by Japan. The agreement includes a reduction in tariffs on Japanese autos, rice, and certain agricultural products [1].

The Japanese auto industry, led by companies like Toyota, Subaru, and Honda, has been significantly impacted by the previous 25 percent tariffs on cars and car parts, which went into effect in April. The new 15 percent tariff is a significant relief for Japanese automakers. The Japanese stock market reacted positively to the news, with the Nikkei 225 surging by 2.4 percent and shares of Toyota Motor jumping over 10 percent [2].

The deal has also had a positive impact on global markets. European shares climbed on Wednesday, with the Euro STOXX 600 rising by 1 percent and auto shares surging by 3.6 percent. The dollar remained weak, with the yen strengthening to 146.20 per dollar [3].

The EU has acknowledged the U.S.-Japan trade deal but is focused on resolving its own trade issues with the U.S. The EU is reportedly refining countermeasures in case of a deadlock before the August 1 deadline. The EU is also hopeful that the U.S. might reach deals with other countries that avoid the higher tariffs on August 1 [3].

The U.S.-Japan trade deal has reduced a major risk to the fragile Japanese economy, providing more scope for the Bank of Japan to raise interest rates to fight inflation. This has led to an increase in yields for 10-year JGBs, rising by 8.5 basis points to 1.585 percent [3].

The trade deal has also sparked optimism about potential progress in tariff negotiations between South Korea and the United States. South Korean automakers have seen their stocks rise as the Japan deal has fueled optimism over potential progress in tariff negotiations [3].

Investors are awaiting results from Tesla and Google's parent Alphabet, two of the Magnificent 7 stocks that have driven much of the market rally fueled by AI optimism. The U.S. and China are also set to discuss an extension to the August 12 deadline for negotiating a trade deal in Stockholm next week [3].

The trade deal has boosted market confidence and provided a much-needed boost to the global economy. The lower tariffs on Japanese cars are expected to have a positive impact on both U.S. and Japanese economies.

References:

[1] https://www.politico.com/news/2025/07/22/trump-claims-new-trade-deal-with-japan-00468891
[2] https://www.livemint.com/news/usjapan-trade-deal-auto-stocks-fuel-nikkei-rally-yen-strengthens-gold-price-eases-on-trump-announcement-top-points-11753235925071.html
[3] https://www.reuters.com/business/autos-transportation/global-markets-wrapup-4-2025-07-23/