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Trade Truce Fuels Tokyo Rally: Nikkei Races Ahead as Japan Revs Up Its Engines

Updated: July 23, 2025 11:11

Image Source: Mint
Japan's Nikkei 225 climbed over 4% today to its record one-year high on a report of a breakthrough Japan-US free trade agreement that boosted investors. The agreement, reducing planned US tariffs and offering new opportunities for Japanese exports, created a buying spree—particularly in automaker shares—and foreshadowed an overall rally for the Japanese and regional economies.
 
Key Highlights
  • US-Japan Trade Agreement Announced: US President Donald Trump has announced a significant trade agreement with Japan, reducing threatened US tariffs on Japanese imports from 25% to 15%. This removed months of market uncertainty and removed a high-risk overhang for Japanese exporters.
  • Japanese Automakers Lead Rally: Leading Japanese automaker shares such as Toyota, Nissan, Honda, Mazda, and Subaru experienced double-digit percentage gains. The Tokyo stock market's transport equipment index jumped over 10%, with Toyota up over 13%.
  • Record Highs and Spillovers: The Nikkei 225 climbed to 4%, above 41,070 for the first time since July 2024, with the Topix index also achieving record highs.
  • Yen Volatility and Bond Sell-Off: Yen moved extremely erratically prior to stabilizing and Japanese bond prices fell as investors anticipated the Bank of Japan to become more hawkish on interest rates after the trade breakthrough.
  • Political Headlines Overlooked: Markets ignored reports of potential shifts in Japan's political leadership, focusing instead on the economic implications of the trade agreement.
  • Bullish Regional Influence: Japanese advances revived optimism throughout Asian markets as overseas investment flowed into Japan heavily in expectation of further US-Japan connections as well as open-up exports.
This trade deal has removed economic uncertainty, and the argument is even stronger for the Bank of Japan to raise interest rates once more.
 
 Source: Reuters, Investing.com, CNBC TV18, Economic Times,

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