Japan took one of the world’s most audacious policy leaps to counter stagnating economic growth. They’re leading with $550 billion to Rebuild America’s Industries. This decision, aligned with a newly established trade agreement announced on July 22, has shifted the narrative within Japan’s corporate sector. The optimism surrounding this agreement spurred a variety of Japanese companies to raise their forecasts. This change follows a rather complicated period coping with overlaid tariffs.
The Nikkei Stock Average (Nikkei 225) reached a new intraday high. It has now gone on to hit its highest level in more than a year! This increase is indicative of the belief in Japanese sectors, especially as they become more comfortable with the new tariff environment.
Changes in Tariff Policy and Corporate Responses
Under Japan’s new trade agreement, 15% is the baseline tariff level that Japan will have on American-made products. This legislation removes apprehension for the key, export-oriented industries such as auto, manufacturing, agriculture and aerospace. Ryosei Akazawa, a leading voice in Japan’s economic conversations, came with a critical voice. He projected that Tokyo hopes to save about ¥10 trillion or about $68 billion overall due to the reduced tariff rates.
The obviousness from the improved tariff structure was enough to change corporate minds. It’s no coincidence that most of Japan’s big-name companies have raised earnings guidance above expectations, largely due to the U.S. tariffs having a lesser-than-expected effect. This bullish disposition stands in stark relief to the fears that once consumed the business community about trade.
Investors reacted to this optimism by sending Japanese equities soaring into all-time record territory. We expect this relatively stable tariff environment to continue at least through early November. This has instilled tremendous confidence among the investors, heralding a positive turn in Japan’s economic environment.
Currency Trends and Export Competitiveness
The currency Japan’s were long artificially propping up their currency, the Yen, to limit this economic shift. Indeed, since our last communiqué in April 2025, the yen has now depreciated by over 4.5% against the U.S. dollar. This yen depreciation has significantly improved the repatriated overseas profits of Japan’s exporters. This reform continues the trend of good vibes in Japan’s corporate environment.
The Nikkei has more than tripled during this same span. Healthy currency movements have played a role in this impressive rise. Since a weaker yen makes Japanese goods more competitive in international markets, that gives exporters a further boost. This transition improves both the bottom line, increasing profit margins and making Japan a more competitive player in global trade.
Worries remain about the prospect of a change in comparative advantage among regional trading partners. Japanese companies may face stiffer competition in other markets if U.S. trade policies change, impacting their ability to maintain their current levels of success.
The Impact of Chinese Demand on Japan’s Economy
The other big thing driving Japan’s economic sunniness is increased demand from China. As China’s economy meets the next milestone, that prosperity usually just means increased export volumes for Japanese products. This relationship has greatly strengthened Japan’s bilateral terms of trade and is a key pillar for Japan’s ongoing economic recovery.
Japanese manufacturers have much to gain from new export opportunities as demand from China expands. It’s the prospect of more volumes sold overseas that ends up generating double your excitement among both capital markets investors and corporate executives.
The recent tariff decisions are a step in the right direction. By keeping the 30% tariff rate on Chinese imports at least until November 9, Japan sets itself up to better defend its trade environment. Specifically, Japan does not use tariff increases that would threaten bilateral trading relationships. This strategy supports the country’s ability to position itself advantageously in a rapidly changing, competitive global marketplace.