Wednesday, July 23, 2025

Trump Announces "Largest Trade Deal Ever" With Japan, Sets Tariffs Rate At 15%; JGBs Plunge

Trade Deal Announcement

- President Trump announced a "massive" trade deal with Japan via Truth Social.

- The deal involves setting tariffs on Japanese imports at 15%.

- Japan is expected to invest $550 billion in the US.

- Trump claimed it could be the largest trade deal in history.

Details of the Agreement

- Japan will open its market to US automobile imports and additional agricultural products like rice.

- Trump emphasized the importance of auto trade due to Japan's trade surplus with the US primarily in cars and auto parts.

- No clear details were provided regarding potential exemptions for Japanese automobiles from separate tariffs.

- Trump had previously threatened a 24% tariff on Japanese imports, later increasing it to 25%.

Negotiation Dynamics

- US negotiators are pushing for Japanese cars to meet US safety standards.

- Japan seeks exemptions from existing tariffs on autos and parts.

- A proposed tariff-rate quota for steel imports from the UK is mentioned but not established for Japan.

Japanese Industry Response

- Shares in Japanese car manufacturers surged following the announcement, with Toyota increasing by over 10%.

- Japanese companies like Isuzu Motors and Toyota are investing significantly in the US.

- The US offers tariff relief for auto companies that assemble vehicles in the US.

Political Context

- Japanese Prime Minister Shigeru Ishiba's political future is tied to the trade negotiations.

- Ishiba expressed the need for careful analysis of the trade deal details and will receive updates from his chief trade negotiator.

Historical Context of Announcements

- Trump's past trade deals often lacked specifics at the announcement, with details provided later.

- Trump indicated plans to sign a joint venture with Japan for LNG exports from Alaska.

Related Agreements

- Trump announced a separate agreement with the Philippines, setting a 19% tariff on exports.

- The announcements come before the August 1 deadline for imposing new "reciprocal" tariffs.

Market Reactions

- Japanese yen fluctuated but strengthened after reports on auto tariffs.

- Japanese stocks on the Topix index rose by as much as 2. 5%, while US equity futures also edged higher.

- Japanese government bonds saw a notable sell-off after the trade deal announcement.

Future Considerations

- UBS reported a strong sell bias related to the trade deal.

- Upcoming focus is on the 40-year bond auction, which follows Ishiba's election loss. Results will be monitored for market stability. 

https://www.zerohedge.com/markets/trump-announces-largest-trade-deal-ever-japan-sets-tariffs-rate-15-jgbs-plunge

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