Markets Cheer U.S.-Japan Trade Deal as Tariff Cut Boosts Japanese Equities

Key Takeaways:

*The Nikkei 225 surged 3%, with auto giants Toyota and Honda leading gains—both rallying nearly 10%—on diminished tariff risk.

*The Japanese yen initially rose 0.2% on the news, though it later pared gains amid ongoing political uncertainty and expectations that the Bank of Japan will maintain a conservative stance.

Market Summary:

Global investors breathed a collective sigh of relief as President Trump unveiled a trade agreement with Japan, significantly reducing proposed tariffs on Japanese imports from 25% to 15%. The breakthrough—seen as a de-escalation of recent trade tensions—provided immediate support for Japan’s export-driven economy and sparked a robust risk-on rally across Asian markets.

Equities Surge on Trade Optimism
Japanese stocks led the regional charge, with the benchmark Nikkei 225 soaring 3% in its strongest session this month. Automobile manufacturers stood out as the biggest beneficiaries, with industry giants Toyota and Honda rocketing nearly 10% as reduced U.S. tariff threats alleviated pressure on one of Japan’s most critical export sectors. The rally reflected renewed confidence in corporate earnings potential amid improved trade conditions.

Yen’s Mixed Response
The Japanese currency initially firmed 0.2% against major counterparts as the deal boosted sentiment, but gains proved fleeting. The yen pared its advance as traders weighed lingering domestic headwinds—including ongoing political uncertainty following the ruling party’s recent election setback and expectations that the Bank of Japan (BoJ) will maintain its conservative monetary policy.

Central Bank Watch
Market attention now shifts decisively to next week’s BoJ policy meeting, where officials are expected to provide crucial guidance on their inflation assessment and policy trajectory. With Japan’s yield curve control framework under scrutiny and global central banks diverging on rate paths, the decision could prove pivotal for the yen’s medium-term direction. Analysts suggest any hints of policy normalization could reignite the currency’s upside potential, while a steadfast dovish stance may keep it anchored near current levels.

The U.S.-Japan agreement marks a notable thaw in trade relations at a critical juncture for the global economy, though markets remain attuned to broader geopolitical risks and monetary policy developments that could influence sentiment in the coming sessions.

Technical Analysis

EURJPY, H4: 

The EUR/JPY pair is gradually retreating within a defined downtrend channel, marking a potential reversal after a strong rally that saw the pair gain over 6% since May. The latest price action signals a bearish tilt as the pair struggles to sustain its upward trajectory.

The key support lies at the 171.50 level, which also aligns with the lower boundary of the downtrend channel. A decisive break below this confluence zone could confirm a deeper correction ahead.

Momentum indicators support the bearish bias. The RSI continues to trend lower, indicating waning buying pressure, while the MACD is on the verge of crossing below the zero line—signaling a shift in momentum as bullish strength dissipates.

Unless the pair rebounds convincingly above its short-term resistance, EUR/JPY appears vulnerable to further downside in the sessions ahead.

Resistance Levels: 173.45, 175.40

Support Levels: 171.50, 169.40