Japan’s Prime Minister Ishiba has made a deal with the United States about tariffs. This deal includes a 15% cut in auto tariffs and a pledge to cooperate on building a strong supply chain focused on economic security. The agreement covers $550 billion in loans and investments from the U.S. However, it does not lower tariffs on Japan’s agricultural goods. Japan will also increase the amount of rice it imports from the U.S. as part of the minimum access framework.

Japan U.S. Auto Tariff Deal

Previously, former President Trump mentioned a major agreement with Japan, claiming it was a big change from previous deals. NHK reported that both countries agreed on a 15% auto tariff. Japan’s Akazawa remarked, “Mission Complete.” Ishiba’s agreement should be seen as a positive development for Japan’s economy, especially for the important auto sector. This should help major exporters, but the effect on the Japanese yen (JPY) is more complicated. The currency primarily depends on the interest rate gap with the U.S. With the U.S. receiving over a third of Japan’s vehicle exports—worth around ¥1.8 trillion in the first quarter of this year—a 15% reduction in tariffs is vital. We expect that this news, referred to by Akazawa as “Mission Complete,” will reduce short-term volatility in the USD/JPY. This might make selling options to collect a premium a good strategy.

Impact of U.S.-Japan Trade Agreement

Japan’s agreement to increase rice imports from the U.S. without gaining similar concessions for its own agricultural products shows its willingness to compromise for a strategic win. This practicality strengthens the alliance between the two nations, which tends to be a long-term positive for Japanese assets. However, it doesn’t significantly change the immediate outlook for the currency. The focus on building a resilient supply chain and the $550 billion U.S. investment plan hints at a stronger strategic partnership. This commitment aims to bring manufacturing and high-tech investments to Japan, which has already boosted the Nikkei 225 index to record highs this year. We should keep an eye on capital inflows related to this deal. Historically, announcements like Trump’s often lead to a “sell the news” response, as the market may have already anticipated the outcome. Since the USD/JPY has been on a strong upward trend for over two years, we don’t see this deal as a reason to change that trend. Any short-term strength in the yen is likely to be temporary, providing a chance to re-enter long USD/JPY positions. Create your live VT Markets account and start trading now.

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