A recent survey shows that 75% of Japanese companies view the new US-Japan tariff agreement positively. This comes after Japan received concessions from the US, leading to lower import duties. Under the July agreement, US tariffs on Japanese goods were reduced from 25% to 15%, and the auto tariff decreased from 27.5% to 15%.

Mixed Reactions To The New Tariff Deal

Despite the reductions, the auto tariff is still significantly higher than the previous 2.5% rate before the Trump administration. Roughly 38% of companies expect negative earnings due to this deal, while 20% anticipate a positive impact. For example, Toyota lowered its profit forecast by 16%, while Sony raised its outlook by 4%, citing less severe tariff effects. The survey shows that almost all companies plan to maintain their capital spending despite the new agreement. Furthermore, 54% of companies intend to increase prices to manage rising costs, while 46% believe they can’t raise prices much more. Some businesses worry that higher prices are already dampening demand and shrinking markets. We see the US-Japan tariff deal not as a solution but as a shift in risk. In July, the Nikkei 225 rallied briefly after the announcement but has since remained stable, indicating ongoing uncertainty. This suggests that broad investments might not be as effective as focused strategies. The divide between winners and losers is becoming clearer, presenting opportunities for paired trades. We believe electronics exporters, who faced less severe tariff effects, may be favored over automakers burdened with a steep 15% tariff. Traders might consider long calls on strong tech stocks versus puts on vulnerable auto manufacturers. The yen’s response illustrates a story of initial relief followed by ongoing concern. After strengthening post-deal, the USD/JPY has since weakened, currently around 148 as the market evaluates the ongoing challenges for Japan’s key export sector. We expect this currency weakness to continue as fears about economic growth outweigh the benefits from tariff relief.

Inflation Concerns And Market Volatility

With over half of the companies planning to raise prices, inflation is a major concern for the coming weeks. Japan’s core CPI has consistently remained above the central bank’s target throughout 2025, complicating monetary policy. This situation makes interest rate derivatives more important as they can hedge against unexpected policy changes. Reflecting on the US-China trade war of 2018-2019, we noted that initial tariff announcements led to several months of increased volatility. The current landscape feels similar, implying that options strategies that benefit from price fluctuations, such as straddles, could be beneficial. We anticipate the Nikkei Volatility Index, which is currently below its yearly average, will begin to rise. Next, we must focus on upcoming economic data to confirm corporate sentiment. The forthcoming Tankan survey will be critical in assessing if business confidence remains strong after the initial relief. We will also closely monitor Japan’s monthly trade balance figures to evaluate the real effects of the 15% auto tariff on export volumes. Create your live VT Markets account and start trading now.

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