Pedestrians walk in front of electronic quotation boards displaying the Japanese yen's rate (R) against the US dollar and the Nikkei Stock Average (L) on the Tokyo Stock Exchange in central Tokyo on July 23, 2025. (Photo by Kazuhiro NOGI / AFP)
TOKYO: Japan’s surprise trade deal with the United States sent its markets on a wild ride, pushing stocks to all-time highs and fuelling a sell-off in government bonds.
Automakers’ shares led a market-wide surge after US President Donald Trump announced the deal last Wednesday. The broad Topix index hit a record close.
Investors, finally having some good news, seemed to largely ignore thorny questions about the details of the trade deal, let alone the tenuous position of Prime Minister Shigeru Ishiba following a recent election setback.
But as the dust settles and focus returns to problems closer to home, investors are questioning whether the rally was a sign of things to come – or just a blip for a market that is facing multiple sources of volatility in the coming weeks and months.
“The deal came and there was this immense relief, and now markets are saying: ‘hang on, not too much’,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. “It’s a relief that we didn’t bleed to death. But we are still in triage, if not the ICU.”
The headache for investors in Japan is that almost every piece of good news comes with a caveat.
The trade deal was a clear win, but the 15% tariffs facing Japanese companies are still well above their level at the start of the year. The economy may get a boost, but that could in turn speed up interest rate hikes.
That has shifted attention to some major events in the coming days, which will offer clues to the direction of travel for a stock market that has underperformed its regional peers this year.
The Bank of Japan’s (BoJ) monetary policy announcement this Thursday, although unlikely to result in a rate change, will be scrutinised for hints that the central bank may hike as early as September. That could hit both bond and stock prices.
Investors will also be focused on corporate earnings, with Fujitsu Ltd, Tokyo Electron Ltd and Nissan Motor Co Ltd among the firms set to report. — Bloomberg
