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    Japan’s corporate earnings could drop by 3% because of US tariffs, making wage negotiations and rate hikes more difficult.

    by VT Markets
    /
    Sep 12, 2025
    US tariffs of 15% on Japanese goods, especially cars and auto parts, are expected to lower Japan’s corporate earnings by up to 3%. This drop could impact wage negotiations set for spring next year.

    The Risk of Tariffs

    Reduced corporate earnings might complicate the Bank of Japan’s plans to raise interest rates in 2026. Ryosei Akazawa, Japan’s top trade negotiator, has voiced concerns about the tariffs and their potential effects on the economy. With the potential of a 15% US tariff, Japanese corporate earnings now face significant risks. The Nikkei 225 has surged over 20% this year and reached record highs earlier in 2025, making it vulnerable to a decline due to this news. We may want to buy Nikkei put options expiring in October or November to protect ourselves or profit from a potential drop. This situation directly poses challenges for the Bank of Japan regarding its goal to increase interest rates in 2026. A delay in policy changes would keep the interest rate gap between the US and Japan large, putting pressure on the yen. We could see USD/JPY break above the 160 level, which it hasn’t maintained consistently, making long positions in USD/JPY futures or call options a smart move.

    Opportunities and Strategies

    Uncertainties in trade policy often lead to increased market volatility, as seen during the 2018 trade disputes. The Nikkei Volatility Index, currently at a low 14, might experience a significant rise soon. Purchasing call options on the volatility index itself is a direct way to capitalize on the expected surge in market activity. These tariffs specifically target cars and auto parts, a vital sector. The United States is the largest market for Japanese automakers, making up over 35% of all vehicle exports last year. Therefore, we see a clear opportunity in buying put options on major companies like Toyota and Honda, as their earnings forecasts could be directly impacted. Create your live VT Markets account and start trading now.

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