From last Friday’s market anxiety, Japanese financial market investors could finally breathe a sigh of relief on Monday (Feb. 10) as Prime Minister Shigeru Ishiba returned from his U.S. visit without having to bring back any new demands from President Donald Trump.
Trump’s declaration of reciprocal tariffs on “all countries” and an additional 25% tariff on all imported steel and aluminum served as a clear reminder of the risks faced by all U.S. trade partners, including Japan. However, investors believe the friendly atmosphere of the first summit between Trump and Ishiba could benefit Japan’s stock market, particularly the country’s automakers.
JAPAN AGREES TO BUY MORE U.S. GOODS
“There were concerns that Trump might impose tariffs on Japanese cars, but that didn’t happen. On the yen, the two leaders confirmed that their finance ministers would maintain close communication. And there were no new demands regarding Japan’s defense spending. All of this is a relief for the market,” said Daiju Aoki, Chief Investment Officer at UBS SuMi Trust Wealth Management, in an interview with Bloomberg.
The Japanese stock market and several other key Asian markets, including Hong Kong and mainland China, even saw gains in the morning session. By nearly noon (Vietnam time), Japan’s Nikkei 225 was up 0.12%, Hong Kong’s Hang Seng rose 1.43%, and China’s Shanghai Composite Index gained 0.31%.
In line with Trump’s goal of reducing the U.S. trade deficit with Japan, Ishiba agreed to purchase more U.S. liquefied natural gas (LNG) and revealed investment plans by Japanese automakers Toyota Motor Corp. and Isuzu Motors Ltd. in the U.S.
The meeting also confirmed no change in Trump’s opposition to Japanese steelmaker Nippon Steel Corp.’s bid to acquire U.S. steel producer United States Steel Corp. However, an alternative plan was proposed in which Nippon Steel would invest capital into U.S. Steel rather than acquiring it outright. This approach could allow Nippon to benefit from its investment while easing tensions with Trump and reducing trade friction for Japanese companies in general.
“The friendly atmosphere and summit outcomes, particularly Japan’s major investment in the U.S. steel sector, will provide some psychological relief for Japanese investors,” said Homin Lee, a senior macro strategist at Lombard Odier in Singapore.
IMPACT ON THE JAPANESE YEN
Some currency analysts believe the yen is likely to remain relatively stable following the Prime Minister’s U.S. visit, as exchange rates were not the central focus of discussions, despite Trump’s long-standing concerns about the yen’s depreciation.
Last Friday, the yen hit an eight-week high against the U.S. dollar after stronger-than-expected Japanese consumer data boosted expectations that the Bank of Japan (BOJ) might raise interest rates in its March meeting. On Monday morning, the yen weakened against the dollar, with the greenback gaining nearly 0.4% to trade close to 152 yen per dollar, up from below 152 yen/USD last Friday.
Mari Iwashita, chief economist at Daiwa Securities Co., suggested that the yen might regain its “safe-haven” appeal if markets perceive Trump’s stance on Japanese tariffs to be less aggressive than initially feared.
On the other hand, Masayuki Koguchi, executive fund manager at Mitsubishi UFJ Asset Management Co., noted that Japan’s commitment to purchasing more U.S. LNG and increasing U.S. investments would ultimately lead to higher demand for the U.S. dollar, potentially putting downward pressure on the yen.
POLITICAL AND MARKET IMPLICATIONS
Fumio Matsumoto, chief strategist at Okasan Securities, believes Ishiba’s handling of the meeting with Trump could help boost public approval for Japan’s ruling Liberal Democratic Party (LDP).
As mentioned earlier, this could also be a positive factor for the Japanese stock market ahead of the upper house elections later this year, as political uncertainty has weighed on the market since Ishiba lost the lower house majority in last year’s election.
However, one thing is certain—investor relief following the Japan-U.S. summit does not mean all risks have been eliminated. The Japanese stock market still faces the possibility of significant shifts.
“Japan could still be targeted by Trump’s new tariffs. This possibility will limit investor enthusiasm, at least until we know which country will be next on Trump’s tariff list and what tariff rates will be applied,” said Tim Waterer, Chief Market Analyst at Kohle Capital Markets in Sydney, in an interview with Bloomberg.
