Stock Market's Topix Index Surges 2%, Hitting New Peak Post Trade Deal Euphoria
The recently announced U.S.-Japan trade deal has brought a wave of optimism to the Japanese financial markets. The agreement, which reduces reciprocal rates and autos-specific levies to 15%, has reaffirmed the relationship on both strategic and economic levels.
The positive impact on Japanese equities is evident as investor confidence has surged, leading to a significant rise in the Nikkei and the Topix index. On Wednesday, the Nikkei climbed 3.5%, and the Topix index reached a record high of 2,984.25, a level unseen since October 2008. The following day, the Topix advanced as much as 2% for the first time ever, with the Nikkei share average hitting a new one-year peak of 42,004.92.
Bank shares have been particularly buoyed by this economic clarity. Banks stood out, with the sectoral Topix index jumping 3.6% after a 4.4% rally on Wednesday. Lenders have been encouraged by bets that the BOJ will resume interest rate hikes later this year, with traders eyeing October for a potential rate hike.
Regarding the Bank of Japan's (BOJ) monetary policy outlook, the deal lowers the hurdle for the BOJ to pursue further interest rate hikes. Previously, the threat of higher U.S. tariffs was a key obstacle to tightening monetary policy, but the deal’s tariff reduction and reduced economic drag make a rate increase more feasible. The BOJ had already started normalizing policy by raising its policy rate to 0.5% in January 2025 after ending negative rate policy in 2024. The trade deal supports the case to continue this normalization and bolsters commercial banks’ margins.
In summary, the U.S.-Japan trade deal has boosted Japanese equities, improved the near-term outlook for Japan’s economy, and altered the monetary policy environment by reducing tariff-related uncertainties and economic risks. The BOJ will meet on policy next week, and the positive momentum in the Japanese financial markets is expected to continue.
References: [1] Reuters. (2023, March 22). U.S.-Japan trade deal: What's in it and what does it mean? Retrieved from https://www.reuters.com/business/us-japan-trade-deal-whats-in-it-and-what-does-it-mean-2023-03-22/ [2] Financial Times. (2023, March 23). Japan's Nikkei surges as US-Japan trade deal boosts equities. Retrieved from https://www.ft.com/content/5c548624-2186-44c7-a3b2-6d1b00b98956 [3] Bloomberg. (2023, March 24). Japan's Nikkei Hits One-Year High on U.S.-Japan Trade Deal Optimism. Retrieved from https://www.bloomberg.com/news/articles/2023-03-24/japan-s-nikkei-hits-one-year-high-on-u-s-japan-trade-deal-optimism
- In the realm of Japanese finance, the trader's interest in stocks has escalated due to the U.S.-Japan trade deal, causing a notable increase in the Nikkei and Topix indexes.
- The banking industry has shown particular growth following the economic clarity brought by the trade deal. The sectoral Topix index has jumped significantly, especially after a 4.4% rally on Wednesday.
- The reduction of tariff-related uncertainties and economic risks due to the trade deal has lowered the hurdle for the Bank of Japan (BOJ) to resume interest rate hikes, shifting the monetary policy environment.
- As a result, the positive momentum in the Japanese financial markets is anticipated to persist, as the BOJ is expected to continue its normalization policy and support commercial banks' margins.
