Japanese stocks saw slight gains on Tuesday, stabilizing after significant market fluctuations triggered by US President Donald Trump’s announcement of tariffs on Canadian and Mexican goods next month.
Stability After Trump’s Tariff Announcement
Although President Trump’s decision to impose tariffs on Canada and Mexico next month disappointed those hoping for no immediate action, it was still less concerning than the potential for broader tariffs, which could have directly impacted Japan’s $150 billion in exports to the US.
The Topix Index rose by 0.1%, closing at 2,713.50 after recovering from an early decline of as much as 0.6%. The Nikkei also advanced by 0.3%, finishing at 39,027.98.
Market Reaction to Trump’s Tariff Plan
Trump’s plan to go ahead with a 25% tariff on Canada and Mexico initially raised concerns, but some analysts noted that the potential impact was already partially factored into market prices.
Toshiya Matsunami, Chief Analyst at Nissay Asset Management, explained, “The market was partly prepared. The lesson from Trump 1.0. was that you should sell on rumor of tariff and buy on fact.”
Even shares of carmakers, which are highly vulnerable to tariffs due to significant exports from factories in Japan and Mexico, managed to recover. Toyota Motor ended the day 0.2% higher.
Impact on Car Manufacturers
Yugo Tsuboi, Chief Strategist at Daiwa Securities, pointed out that some car manufacturers who export to the US from Mexico could see temporary damage to their share prices. However, unless the tariffs become more widespread, he believes it will not cause a major decline in market sentiment that could weigh on broader Japanese stocks.
Investors Look Ahead to Bank of Japan’s Policy Meeting
Despite the market fluctuations, investors remain confident that the Bank of Japan (BOJ) will proceed with its widely anticipated rate hike on Friday. Money market instruments are pricing in a more than 90% chance of a rate hike to 0.50%.
However, bank shares saw some weakness as investors took profits from recent gains ahead of the BOJ’s policy meeting.
Semiconductor Shares Shine
Chip-related shares emerged as a bright spot, with the MSCI Japan semiconductor index rising by nearly 2%. Some market players found comfort in Trump’s silence on the issue of limiting chip exports to China, which provided support for semiconductor stocks.
Overall, while the Japanese stock market experienced volatility due to the tariff news, a sense of stability returned as investors anticipated key policy decisions and weighed the impact of Trump’s latest trade moves.
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