Japan and the United States have reached an agreement on tariffs. The US will impose a 15% tariff on Japan, and Japan will have to invest 550 billion US dollars in the US, with the US reaping 90% of the benefits.

On July 23 local time, Japanese Prime Minister Shigeru Ishiba announced that Japan and the United States had reached an agreement on tariffs, and the US side would impose a 15% tariff on Japan. Once this news was released, it quickly triggered a chain reaction in the financial market and international trade.

The game and compromise of rights and interests

According to a report by Japan's NHK citing government officials, in terms of automobiles, the United States has imposed a 12.5% tariff on imported cars from Japan. Combined with the previous 2.5% tariff rate, the total is 15%, a significant reduction from the 25% auto tariff level previously threatened by Trump. Tariffs on steel and aluminium will remain at the current 50%. In addition, Japanese Prime Minister Shigeru Ishiba also stated that Japan and the United States have reached an agreement on strengthening supply chain cooperation with the US and ensuring economic security through the investment of Japanese enterprises in fields such as semiconductors, steel, shipbuilding, energy, and automobiles. In terms of agricultural products, Japan will increase the proportion of rice imported from the United States under the current "minimum access system" for rice. However, this Japan-US agreement does not include Japan's reduction of tariffs on US goods, including agricultural products. Trump disclosed on the Social media platform Truth Social that Japan will invest up to 550 billion US dollars in the United States, which undoubtedly injected a "shot in the arm" into the US economy.

The stock market was in a frenzy while the foreign exchange market was in turmoil

The news came and the global financial markets instantly boiled over. The Japanese stock market was the first to respond positively, with the Nikkei 225 index surging sharply, rising by 2.9% on the day and reaching a new high in over a year. The automotive sector emerged as the leading force in the gains, with Toyota's share price surging by 8.8%, while Honda and Nissan rose by 8.4% and 7.8% respectively. As a pillar industry of Japan's exports to the United States, automobiles account for more than a quarter of Japan's total exports to the United States. The reduction of tariffs has greatly alleviated the pressure on Japanese automakers.

The US stock market also performed strongly. The three major US stock futures rose slightly after the announcement. At the close, the Dow Jones Industrial Average rose 507.85 points, or 1.14%, to 45,010.29. The Nasdaq rose 127.33 points, or 0.61%, to 21,020.02. The S&P 500 index rose 49.29 points, or 0.78%, to 6,358.91. Both the S&P 500 index and the Nasdaq Composite Index set new historical closing highs. The market generally believes that the US-Japan tariff agreement has eliminated a major uncertainty factor, alleviated market concerns over a tariff war, and enhanced investor confidence.

In the foreign exchange market, the exchange rate of the US dollar against the Japanese yen was volatile. After the agreement was reached, the USD/JPY pair fluctuated and dropped by 0.27% at one point, hitting a more than one-week low of 146.19. However, it soon recovered its losses and traded around 146.53. The fluctuations of the Japanese yen reflect the complex expectations of the market regarding new changes in the economic relationship between the United States and Japan.

Dual considerations of politics and economy

The tariff agreement reached between Japan and the United States is backed by various considerations such as politics and economy. From an economic perspective, in the short term, this agreement can prevent Japan from being hit by higher tariffs. Previously, the United States threatened to raise the auto tariff to 25%, which had a huge impact on pillar industries such as Japan's automotive industry. Now that the tariff remains at 15%, it can effectively reduce the risk of a decline in exports and production in Japan's automotive industry, and play a certain protective role for the upstream and downstream of the industrial chain as well as related employment. From a political perspective, after World War II, Japan's national security relied on the protection of the United States. In international agreements involving American interests, Japan often chose to compromise. The conclusion of this agreement will help maintain the Japan-US alliance and enable Japan to continue to maintain close ties with the United States in both military and diplomatic aspects.

Impact Outlook: Short-term Benefits and long-term Concerns

In the short term, the agreement has brought certain benefits to both Japan and the United States. For Japan, it has avoided the impact of a significant increase in tariffs, stabilized the exports of industries such as automobiles, and boosted market confidence. For the United States, it not only received a huge investment commitment from Japan but also alleviated the trade deficit problem to a certain extent.

However, in the medium and long term, the inequality of the agreement may bring hidden concerns to the Japanese economy. Japan needs to invest 550 billion US dollars in the United States, and the US side will gain 90% of the profits. This may bring considerable fiscal pressure. If Japanese enterprises accelerate the transfer of production capacity to the United States, it may also accelerate the hollowing out of domestic industries in Japan. In addition, Japan's opening up of the market for agricultural products such as rice will cause domestic related industries to face fierce competition from American agricultural products, which may lead to an expansion of the trade deficit.

The conclusion of the US-Japan tariff agreement has brought stability and optimism to the market in the short term. However, in the long run, its impact on the economies of both countries and even the global economy still needs to be continuously observed. Against the backdrop of global economic integration, the direction of trade policies remains a key factor influencing economic development and market fluctuations.

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