Japan chief cabinet secretary Hayashi: believe declining uncertainty would reduce risk of U.S. trade policy putting downward pressure on Japan, global economies

Japan chief cabinet secretary Hayashi: believe declining uncertainty would reduce risk of U.S. trade policy putting downward pressure on Japan, global economies

Japan's Chief Cabinet Secretary, Yoshimasa Hayashi, has expressed optimism that declining uncertainty surrounding U.S. trade policies could reduce the risk of downward pressure on Japan and global economies. This sentiment comes amidst a period of political flux in Japan, with the Liberal Democratic Party (LDP) and its coalition partner, Komeito, losing their majority in the upper house of parliament.

Hayashi's remarks follow the election results, which saw the LDP and Komeito lose 19 seats out of 66, failing to retain their majority. The opposition parties, including the Constitutional Democratic Party of Japan (CDPJ) and the populist Sanseito party, made significant gains. This political shift has raised questions about the stability of the current government and the future of Prime Minister Shigeru Ishiba's leadership.

Despite the political uncertainty, Hayashi believes that the resolution of the U.S.-Japan trade deal could mitigate some of the risks posed by U.S. trade policies. The recent trade agreement, announced by the Trump administration, secured a 15% tariff instead of the threatened 25%, and extended this reduction to autos. While this is seen as a positive development, the tariffs are still higher than those previously in place, and economic sentiment in Japan remains low due to ongoing tariff fears.

Hayashi's optimism is rooted in the belief that the resolution of trade disputes could reduce uncertainty, thereby encouraging investment and economic growth. However, the effectiveness of this strategy remains to be seen, given the current low approval rating of the Ishiba cabinet and the potential for political instability in the near future.

As Japan continues to navigate the complexities of U.S. trade policies, the focus will remain on the ability of the new leadership to maintain stability and promote economic growth. The political landscape is expected to be fluid, with potential leadership changes in the coming months. Despite this, the market has shown resilience, with Japanese stocks experiencing significant growth since the resignation of former Prime Minister Abe in September 2020.

In conclusion, while political uncertainty remains a factor in Japan's economic landscape, Chief Cabinet Secretary Hayashi's belief in the potential benefits of reduced uncertainty surrounding U.S. trade policies offers a glimmer of hope for the future. The market's resilience in the face of political instability suggests that investors should remain cautiously optimistic about Japan's economic prospects.

References:
[1] https://www.fisherinvestments.com/en-us/insights/market-commentary/japans-new-us-trade-deal-and-the-countrys-revolving-door
[2] https://www.marketwatch.com/story/canada-posts-wider-budget-deficit-in-first-two-months-of-2025-26-fiscal-year-update-3ac2b4ed