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Nikkei gains as Trump announces Japan Trade Deal

The Asian market rallied on Wednesday, after President Donald Trump announced that he had signed a trade agreement with Japan. This fueled hopes for more deals to come and helped temper the disappointment of U.S. earnings which highlighted the drag caused by higher tariffs.

Trump said late Tuesday that a deal with Tokyo would see Japan pay a lower tariff of 15% on shipments into the U.S. The agreement came after the U.S. reached an agreement with the Philippines, where the U.S. will collect a tariff of 19% on imports.

Charu Chanana is the chief investment strategist for Saxo. She said that expectations for a breakthrough had been low. Trump's announcement has delivered a mild surprise, providing relief to Japanese stocks in the near term.

The deal is a strategic one, as it allows Japan to avoid immediate tariff increases, while Trump's focus shifts elsewhere.

The Nikkei index rose 2.6% in Japan on Wednesday, as automakers' shares surged after news that the proposed auto tariff will be reduced to 15% from 25%. Mazda Motor rose 17%, while Toyota Motor increased 11%.

The yields on 10-year JGBs increased by a staggering 8.5 basis points to 1.585%. This helped clear the way for the Bank of Japan's return to interest rate increases.

The yen's reaction was muted. It only managed a 0.1% increase to 146.42 dollars. The Japanese Prime Minister Shigeru Shiba is planning to decide soon whether he will step down, after assessing the result of the trade agreement. Yomiuri reported.

Trump said that representatives of the European Union will be coming to trade negotiations with him on Wednesday.

This sparked hopes for a deal in Europe as the markets worried about wider EU countermeasures, despite fading signs of a Washington-based trade agreement.

The EuroStoxx 50 futures increased by 0.8% while Wall Street Futures rose by about 0.1%.

Treasury Secretary Scott Bessent announced that in another positive development U.S. officials and Chinese officials would meet next week in Stockholm to discuss an extension of the August 12 deadline to negotiate a trade agreement.

Hong Kong's Hang Seng index rose 0.5%, while Chinese blue-chips gained 0.3%. MSCI's broadest Asia-Pacific share index outside Japan rose 0.6%.

Wall Street ended the night mixed after investors analyzed a series of earnings reports that showed signs that Trump's Trade War is hitting profit margins. General Motors fell 8.1% after it reported that tariffs had taken a $1 billion toll on its quarterly results.

RTX shares fell 1.6% as the aerospace and defence giant was hit by tariffs despite a strong demand for their engines and aftermarket service.

Investors now await the results of Tesla and Google parent Alphabet, the Magnificent Seven stocks that drove much of the rally in the stock market fuelled by AI optimism.

The foreign exchange market is a bit quiet, with dollar's overnight losses and lower Treasury yields holding firm. The dollar index remained flat at 97.45 after slipping 0.4% overnight, its third consecutive day of declines.

The euro dropped 0.1% to $1.1739, after rising 0.5% overnight.

The benchmark 10-year U.S. Treasury Yields increased by 2 basis points, to 4.3559% after falling 3 bps overnight. Trump continued to criticize Federal Reserve Chair Jerome Powell, for not reducing interest rates. Bessent, however, said that Powell did not need to step down right away.

Bessent said that the Fed's independence in monetary policy was threatened by the "mandate creep" it has taken into other areas. He called on the U.S. Central Bank to review these operations.

The oil prices rose a bit on Wednesday. U.S. crude oil rose by 0.4% to $65.60 a barrel. Brent is now at $68.88 a barrel, up by 0.4%.

The spot gold price remained at $3.429 per ounce.

(source: Reuters)