23.07.25 - New trade deal - Japan

Japan has joined the small group of countries reaching a trade agreement with the US. Overnight, both sides announced a deal that reduces reciprocal tariffs to 15%, down from the previously proposed 25%. The agreement notably includes the auto sector. Japanese car exports to the US, which accounted for 28.3% of total Japanese shipments in 2024, will now face a 15% tariff, rather than the universal 25% rate imposed on other nations.

So far, the UK, Japan, Vietnam, and Indonesia have finalized trade deals with the US. China has agreed to a 90-day framework, currently under ratification.

Markets: Nikkei 225 Index jumps almost 4% - Japanese yen weakened while Japanese interest rates ticked slightly higher

My view: Markets are cheering the deal. While 15% appears more favorable than 25%, the cost is simply shifted, either to corporations or consumers. That will weigh on consumption, sales, and ultimately earnings. So far, the market is ignoring these second-order effects.

The latest deal announcement may trigger some spillover optimism in Europe. While nervousness rose in recent days ahead of the August 1 tariff deadline, renewed hopes are building that the EU might still reach a deal in time.
Switzerland, which hasn’t yet received a tariff letter, remains in active talks to strike a deal.

I’m holding off on adding equity exposure at current market levels, only considering selective opportunities if they emerge. Several red flags highlighted in recent days continue to support a cautious stance.

Note: The ETFMandate portfolio currently holds no allocation to Japan.

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