Tariff Turbulence in Asia-Pacific: Navigating Currency Risks and Sector Vulnerabilities

The Asia-Pacific region, a linchpin of global technology production, faces mounting uncertainty as U.S. tariff threats loom over Japan's tech sector and Taiwan's semiconductor industry. With reciprocal tariffs set to escalate in July 2025 and Section 232 investigations targeting critical supply chains, investors must weigh currency depreciation risks alongside sector-specific vulnerabilities. Here's how to position portfolios for this new reality.

The Tariff Sword of Damocles

Japan's tech sector faces a 24% ad valorem tariff delayed until July 9, 2025, while Taiwan's semiconductor industry grapples with a 32% rate under the same timeline. These measures are part of the U.S. “America First” trade strategy, which could expand further if Section 232 investigations into semiconductors and critical minerals conclude that imports threaten national security.

The stakes are high: Japan's tech giants like Sony (SNE) and Taiwan's TSMC (TSM) are cornerstones of global supply chains. A 25%+ tariff on semiconductors or fabrication equipment could disrupt everything from automotive electronics to defense systems.

Currency Depreciation: The Silent Risk

Beyond direct tariff impacts, currency weakness could amplify losses for unhedged investors. Both the yen and Taiwan's New Taiwan Dollar (NTD) have historically weakened during periods of trade tension. A stronger U.S. dollar (driven by Federal Reserve policies and safe-haven flows) exacerbates this pressure:

• Japan: A weaker yen raises import costs for energy and materials, squeezing corporate margins.
• Taiwan: A falling NTD reduces dollar-denominated earnings for exporters, even if tariffs are avoided.

Sector-Specific Vulnerabilities

Japan's Tech Sector:
- Exposure: 24% tariffs on all products unless exempted (e.g., smartphones under Annex II).
- At-Risk Stocks: Sony (SNE), Panasonic (PCRFY), and robotics firms reliant on U.S. markets.
- Wildcard: Section 232 investigations on steel derivatives could indirectly hit tech hardware.

Taiwan's Semiconductors:
- Exposure: 32% tariffs on chips and equipment, plus potential 25%+ levies post-Section 232 findings.
- At-Risk Stocks: TSMC (TSM), GlobalWafers (GLOB), and suppliers like Entegris (ENTG).
- Indirect Risks: Maritime cargo tariffs (20-100%) could disrupt Taiwan's logistics networks.

Opportunities in Hedging and Safe Havens

Investors can mitigate risks through three strategies:

1. Dollar-Hedged ETFs:
   The WisdomTree Japan Hedged Equity Fund (DXJ) protects against yen weakness while offering exposure to Japanese equities. It outperformed the unhedged iShares MSCI Japan ETF (EWJ) by 5%+ YTD 2025 amid currency volatility.

1. Sector Rotation to Defensive Plays:
2. Japan: Shift to domestically oriented sectors like healthcare (e.g., Takeda (TKPYY)) or utilities (e.g., Tokyo Electric (9501.T)).

3. Taiwan: Focus on domestic consumption stocks (e.g., food and beverage) less tied to exports.

4. Gold as a Safe Haven:
   The SPDR Gold Shares (GLD) offer a hedge against equity volatility and currency fluctuations. Gold typically gains when trade tensions spike, as seen during the 2019 U.S.-China tariff war.

Conclusion: Prudent Exposure, Strategic Hedging

Asia-Pacific equities are caught in a tariff crossfire that demands caution. While Japan's tech and Taiwan's semiconductors face material risks, investors can navigate these headwinds by:
- Using dollar-hedged ETFs to neutralize currency exposure.
- Allocating to defensive sectors and safe-haven assets like gold.
- Avoiding unhedged bets on tariff-sensitive stocks until trade policies stabilize.

The path forward is uncertain, but prepared portfolios can turn volatility into opportunity.

Stay informed, stay hedged.