Nikkei 225 Jumps 3.5% on Landmark U.S.-Japan Trade Deal Auto Tariffs Cut to 15%

The Japanese equity market surged on July 23, 2025, as the Nikkei 225 index (.N225) climbed 3.5% following the announcement of a landmark U.S.-Japan trade deal. The agreement, described by President Trump as the “largest in history,” included a $550 billion investment package from Japan to the U.S. and a reduction of U.S. auto tariffs from a proposed 24% to 15%. The yen remained stable at 0.0068 JPY to the U.S. dollar amid the rally [1]. Automakers led the charge, with Toyota’s shares rising 14% as the sector’s exposure to reduced import levies boosted investor confidence [3].

Global markets also responded positively, with the MSCI Asia-Pacific Index (excluding Japan) rising 0.7% and European benchmarks like the FTSE 100 and DAX gaining 0.6% and 0.9%, respectively. The deal eased near-term fears of a trade-driven slowdown, particularly as the August 1 tariff deadline loomed [1]. However, analysts emphasized that unresolved risks remained. Deutsche Bank’s Jim Reid noted that while the agreement reduced immediate volatility, tariffs of 30% on the EU, 35% on Canada, and 50% on Brazil still threatened to disrupt global trade flows [1]. UBS’s Mark Haefele highlighted that the lower auto tariffs could improve Japan’s GDP growth by 0.4 percentage points in 2025 and 2026 but warned of ongoing volatility ahead of the August 1 deadline [1].

The market’s optimism was tempered by skepticism about the deal’s long-term viability. Goldman Sachs’ Jan Hatzius and JPMorgan’s Jamie Dimon cautioned against overreliance on the “TACO (Trump Always Chickens Out)” trade, which assumes last-minute tariff delays. Deutsche Bank acknowledged that while markets currently price in a delay, the outcome remains uncertain, with historical precedents like the February 2025 Canada-Mexico tariff postponement suggesting surprises could emerge [1].

The agreement’s structure—balancing U.S. demands for reduced non-auto tariffs with Japan’s export commitments—drew cautious optimism. U.S. Treasury Secretary’s statements reinforced short-term confidence, but analysts stressed that implementation details, such as non-tariff barriers and supply chain adjustments, would determine the deal’s broader impact [3]. The Nikkei’s surge to a one-year high underscored the index’s sensitivity to trade policy shifts, particularly for automakers, which comprise a significant portion of its weighting [3].

Despite the immediate gains, the focus shifted to potential 11th-hour negotiations. Investors speculated that further tariff reductions or sector-specific agreements could emerge, though U.S. threats to maintain high tariffs on copper and other materials lingered. As Reid noted, “We might not know the outcome until hours before the deadline,” echoing past patterns [1].

Sources:

[1] [European, Japan stocks surge after US-Japan trade deal](https://www.reuters.com/business/autos-transportation/global-markets-wrapup-4-2025-07-23/)

[3] [trade deal japan us - The Economic Times](https://economictimes.indiatimes.com/topic/trade-deal-japan-us)