Japanese stocks managed modest gains on Tuesday, stabilizing after a volatile reaction to U.S. President Donald Trump’s announcement that he would impose tariffs on goods from Canada and Mexico next month. While Trump’s pledge disappointed market participants who had hoped for no immediate tariff action, it was still seen as a less severe option than a broader, universal tariff that could have directly impacted Japan’s $150 billion worth of exports to the United States.
The Topix Index edged up 0.1%, closing at 2,713.50 after recovering from an earlier dip of 0.6%. The Nikkei 225 also rose by 0.3%, ending the day at 39,027.98.
Tariff Concerns Partially Priced In
Trump’s confirmation of a 25% tariff on goods from Canada and Mexico was seen as a compromise compared to the market’s worst fears of a wider, global tariff. Some analysts noted that much of the potential impact had already been priced into the market.
“The market was partly prepared. The lesson from Trump 1.0. was that you should sell on rumor of a tariff and buy on fact,” said Toshiya Matsunami, chief analyst at Nissay Asset Management.
Shares of automakers, typically the most vulnerable to tariff threats due to significant exports to the U.S. from factories in Japan and Mexico, managed to recover from early losses. Toyota Motor, for instance, closed 0.2% higher.
Limited Impact on Broader Market Sentiment
Analysts noted that while there might be temporary pressure on car manufacturers shipping to the U.S. from Mexico, the broader market sentiment remained relatively intact. Yugo Tsuboi, chief strategist at Daiwa Securities, suggested that unless the tariffs become more widespread, they are unlikely to significantly dent the broader Japanese stock market.
“Unless it’s universal tariffs, it will not lead to a significant deterioration in sentiment that would weigh on broader Japanese stocks,” Tsuboi stated.
Anticipation Builds for BOJ Rate Hike
Despite the market’s fluctuations, investor sentiment remains positive, especially with expectations building for the Bank of Japan’s upcoming policy meeting. Money market instruments are pricing in a greater than 90% chance of a rate hike to 0.50% this Friday. However, bank shares saw some weakness, as investors took profits ahead of the central bank’s decision.
Semiconductor Stocks Shine Amid Tariff Uncertainty
A bright spot in the market was the semiconductor sector. The MSCI Japan Semiconductor Index gained nearly 2%, driven in part by market optimism over Trump’s silence on curbing chip exports to China—a key issue for the sector. Investors seemed encouraged by the lack of further escalation on the chip front, providing a boost to chip-related stocks.
Overall, while the immediate effects of Trump’s tariff announcement created some market volatility, Japanese stocks found support in positive expectations for the Bank of Japan’s upcoming policy move, with semiconductor stocks benefiting from global trade dynamics.
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