Japan and U.S. Maintain 50% Tariffs on Steel and Aluminium in Trade Pact

Economic

Summary:

Japan and the United States have agreed to retain the existing 50% tariff on steel and aluminium as part of their newly concluded trade agreement, according to a report by NHK....

Steel and Aluminium Tariffs Remain Intact in U.S.–Japan Trade Deal

Despite striking a broader trade agreement this week, Japan and the United States have opted to maintain the steep 50% tariffs on steel and aluminium products, as reported by Japanese public broadcaster NHK on Wednesday. This decision marks a significant continuity in trade policy, particularly in sectors central to both nations’ industrial bases.

While the agreement included a reduction of auto tariffs from a planned 25% down to 15%, the choice to retain the existing metal tariffs suggests that Washington is prioritizing domestic protectionism in key manufacturing sectors. For Japan, a leading exporter of high-grade steel, this is a notable concession, particularly in light of the country’s substantial $550 billion investment commitment in the U.S., also outlined in the deal.

The 50% tariff one of the highest in U.S. trade practice has been a source of contention since it was first imposed under national security grounds. Maintaining it signals that U.S. steel and aluminium producers will continue to enjoy a competitive buffer against imports from Japan.

Implications for Industry and Global Trade

The continuation of these tariffs is expected to maintain cost pressures on downstream industries in both countries, such as automotive, construction, and machinery. For Japanese firms, the policy could redirect investment focus toward U.S.-based production to bypass tariffs. For American companies that rely on Japanese speciality metals, the deal may preserve elevated input costs.

This outcome also aligns with U.S. President Donald Trump’s broader trade strategy of selective tariff relief providing reductions in sectors like autos while holding firm on strategically vital industries like steel. It may also reflect an effort to avoid political backlash from domestic steelworkers ahead of the upcoming election cycle.

By preserving the high tariff on metals while easing restrictions in other areas, the U.S.–Japan trade deal highlights the balancing act both nations are navigating. For Washington, it is about showing support for industrial labor. For Tokyo, it's about securing broader economic cooperation despite sectoral sacrifices. As negotiations continue with other partners like China and the EU, this agreement may set a precedent for the tactical tradeoffs embedded in Trump-era deal-making.

Source: NHK

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Economic

BOJ Takes Cautious Stance Amid U.S. Trade Volatility

In a closely watched speech delivered from Kochi, Japan, Bank of Japan Deputy Governor Shinichi Uchida expressed concern over the “extremely high” uncertainty stemming from evolving global trade dynamics chiefly U.S. President Donald Trump's aggressive tariff policies. These uncertainties, he warned, could jeopardize both Japan’s economic activity and price stability, introducing downside risks to the BOJ’s baseline projections.

While Uchida affirmed the central bank's commitment to gradually raising interest rates if the economy and inflation evolve as anticipated, he also underscored that future rate decisions hinge on how global trade disputes resolve. The BOJ will assess the data “without any preconceptions,” especially given how sensitive Japan’s export-driven economy is to external shocks.

Two Scenarios: Trade Progress or Prolonged Pain

Uchida outlined two divergent paths:In a favorable outcome where Trump's trade talks such as the recent U.S.-Japan tariff agreement lead to a more predictable trading environment, Uchida believes Japanese companies would likely enjoy profit growth, allowing wage increases to continue. This, in turn, could strengthen the BOJ’s case for further tightening monetary policy.

However, should protectionist policies persist or escalate, Uchida warned that the ripple effects could derail corporate profits, dampen wage growth, and stall inflation. In such a scenario, the central bank may need to pause or reverse course on its tightening agenda to maintain macroeconomic stability.

Policy Implication: Balancing Risks with Vigilance

Uchida’s remarks reflect the BOJ’s increasing sensitivity to external pressures just as Japan emerges from years of ultra-loose monetary policy. With recent yen appreciation, ongoing geopolitical tensions, and domestic wage negotiations hanging in the balance, his comments reinforce a data-driven and reactive policy stance.

As the BOJ prepares for its upcoming meeting, markets will be watching not just Japan’s inflation and GDP figures, but also signals from Washington and the unfolding global trade map factors that could tip the BOJ’s cautious optimism in either direction.

Source: Reuters

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Commodity

Oil Markets Find Support as Trade and Inventory Data Signal Renewed Demand

After a three-session slide, oil prices recovered slightly on Wednesday, bolstered by geopolitical developments and favorable demand signals from the United States. Brent crude climbed to $68.92 a barrel, up 0.48%, while U.S. West Texas Intermediate (WTI) rose to $65.64, an increase of 0.51%.

The modest recovery follows news that U.S. President Donald Trump announced a trade agreement with Japan, including a 15% tariff on Japanese imports and a pledge of $550 billion in Japanese investments in the United States. The deal marks progress in ongoing tariff negotiations, alleviating some of the broader uncertainty that had weighed on commodity markets.

Previously, oil markets had come under pressure as optimism over global trade negotiations diminished following threats of countermeasures by the European Union against U.S. tariffs. The agreement with Japan, therefore, offers a glimmer of stability, particularly as the August 1 deadline for broader U.S. tariffs approaches.

Inventory Data Indicates Rising U.S. Demand

Oil’s rebound was also supported by expectations of a drawdown in U.S. crude inventories. A Reuters poll of nine analysts suggested that U.S. stockpiles fell by an average of 1.6 million barrels in the week ending July 18. The American Petroleum Institute confirmed that both crude and gasoline inventories declined, though distillate stocks rose.

This data suggests an uptick in demand as the summer driving season continues, offering hope that consumption is starting to catch up with supply. Market observers are now turning to the official figures from the U.S. Energy Information Administration (EIA) for confirmation.

Geopolitical Pressures and Russian Sanctions

In parallel, U.S. Energy Secretary comments about potential sanctions on Russian oil added bullish pressure. These remarks followed the European Union’s 18th sanctions package, which includes a lowered price cap on Russian crude. However, analysts remain skeptical about the effectiveness of EU-only sanctions without equivalent enforcement from the U.S., especially given Russia’s ability to redirect oil flows to willing buyers outside the Western alliance.

The recent uptick in oil prices illustrates how sensitive the market remains to geopolitical signals and inventory trends. While the U.S.–Japan trade deal and falling inventories offer immediate support, uncertainty surrounding future tariffs and global sanctions on Russian energy continue to cast a long shadow. With the August 1 deadline looming and inventory data pending, market participants are bracing for further volatility as political developments increasingly steer energy dynamics.

Source: Reuters

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Forex

Economic

Key points:

●Auto stocks lead rally on reduced U.S. import levy

●Bank shares gain as BOJ rate hike bets increase

●Markets shake off report Japan PM Ishiba to resign

Japanese automakers led a surge in the Nikkei share average to a one-year peak on Wednesday, while bonds slid after Tokyo reached a trade deal with Washington, ending a months-long stalemate.

The Nikkeirallied as much as 3.3% to 41,070.91, its highest since July last year. The Tokyo Stock Exchange's transport equipment indexsoared 10.3%, with Toyota Motorsurging more than 13%.The trade deal reduced economic uncertainty, bolstering the case for the Bank of Japan to resume raising interest rates.

Traders sold Japanese government bonds, pushing two-year yields (JP2YTN=JBTC) up by 7 basis points (bps) to 0.82%, the highest since April 2, when U.S. President Donald Trump shocked markets with his aggressive "Liberation Day" tariff announcement.

Markets largely shrugged off a media report that Japanese Prime Minister Shigeru Ishiba would step down by the end of August.Ishiba is facing growing opposition from within his Liberal Democratic Party for his vow to stay in power despite the ruling coalition's defeat in Sunday's upper house election.

The yen was last down about 0.2% at 146.96 per dollar.Trump said on Tuesday the U.S. and Japan had struck a trade deal that includes a 15% tariff that will be levied on U.S. imports from the Asian country, down from a threatened tariff of 25%.

Industry and government officials briefed on the agreement said the deal also lowers the tariff to 15% from 25% on Japanese autos, which account for more than a quarter of the country's exports to the U.S.

"It is commendable that the 25% baseline tariff was avoided," said Norihiro Yamaguchi, senior Japan economist at Oxford Economics in Tokyo. "Lowered uncertainty will be welcomed in the equity market."

Bank shares gained, sending the TSE's banking indexup 4.5%.The 10-year JGB yield (JP10YTN=JBTC) jumped 9.5 bps to 1.595%, matching last week's 17-year high.Ten-year Japanese government bond futures (2JGBv1) tumbled as much as 1.04 yen to 137.56 yen, their lowest since March 28.

Deputy BOJ Governor Shinichi Uchida said the central bank needs to focus on downside risks to the economy. His comments came ahead of a BOJ policy meeting next Wednesday and Thursday.

"I don't think this (trade deal) alone will lead to a Bank of Japan rate hike next week, but the possibility of a rate hike between September and October has increased," said SMBC chief currency strategist Hirofumi Suzuki. "This will create pressure to buy the yen."

Source: TradingView

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Economic

Detroit Three Sound Alarm Over Japan Deal as Tariff Disparities Emerge

The major U.S. automakers General Motors, Ford, and Stellantis have voiced strong concerns over the newly announced trade deal between the United States and Japan, which would reduce tariffs on Japanese vehicle imports to 15%. The American Automotive Policy Council (AAPC), representing the Detroit Three, argues that such a move undermines the competitive position of U.S.-based automakers, especially when tariffs on imports from Canada and Mexico remain at 25%.

Matt Blunt, president of the AAPC, sharply criticized the framework of the agreement, highlighting the contradiction in allowing lower tariffs for vehicles with minimal or no U.S. content from Japan, while maintaining higher tariffs for North American-built cars that incorporate substantial U.S. labor and parts. He stated plainly that such terms are "a bad deal for U.S. industry and U.S. auto workers."

Mounting Costs and Production Adjustments

General Motors disclosed that it suffered a $1.1 billion loss in Q2 alone due to tariffs, and the outlook for Q3 is even grimmer if the tariff disparity remains. Stellantis echoed similar challenges, citing €300 million (approximately $352 million) in tariff-related costs and announcing reductions in vehicle shipments and manufacturing operations to compensate.

The Detroit Three’s frustration is compounded by President Donald Trump’s threat to raise tariffs on Mexican and Canadian imports to 30% and 35%, respectively, by August 1. This dramatic escalation risks further disruption to supply chains and cost structures for U.S. automakers that depend heavily on integrated North American production.

Ongoing Pattern of Discontent

This isn’t the first time the AAPC has pushed back against Trump's trade moves. In May, the group also opposed the proposed U.S.-UK trade deal that granted British carmakers a quota of 100,000 vehicles exported to the U.S. under preferential terms, citing similar disadvantages for domestic producers.

The Detroit Three’s unified opposition highlights deep anxieties within the U.S. auto industry over emerging trade policies that appear to favor strategic allies like Japan and Britain while penalizing regional partners and domestic manufacturers. If Trump’s tariff agenda continues along this trajectory, U.S. automakers may face significant structural disadvantages, prompting broader reassessments of supply chains, production strategies, and labor commitments. With August 1 fast approaching, industry leaders are urging the administration to reconsider the terms to preserve fairness and competitiveness for American manufacturing.

Source: Reuters

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Commodity

Gold Sustains Rally Amid Trade Diplomacy and Fed Uncertainty

Gold prices steadied on Wednesday near $3,430 per ounce after a three-day rally, as markets reacted to President Donald Trump’s new trade agreement with Japan and the upcoming U.S.-China talks in Stockholm. The precious metal, which has risen 2.5% this week, is benefiting from a combination of geopolitical trade uncertainty, falling Treasury yields, and a weakening dollar conditions that typically bolster gold’s appeal as a non-yielding safe-haven asset.

The rally also follows Trump’s announcement of a 15% tariff on Japanese goods and a 19% tariff on imports from the Philippines, marking a geopolitical recalibration that is drawing investor focus away from riskier assets and toward havens like gold. Simultaneously, the upcoming third round of U.S.-China trade talks, set to be held in Stockholm next week, has injected cautious optimism into markets, though clarity on long-term trade policy remains elusive.

Interest Rate Expectations and Dollar Trends Add Tailwind

Another key factor lifting gold is speculation around Federal Reserve policy. Treasury Secretary Scott Bessent’s endorsement of Fed Chair Jerome Powell despite Trump’s frequent criticism has provided reassurance to markets that monetary policy will remain independent. The Fed has held rates steady in recent months, awaiting clearer signs on how global tariffs will affect U.S. inflation.

With the Fed now in its blackout period ahead of the July 29–30 policy meeting, traders are speculating on the potential for a dovish pivot, particularly if recent tariff actions start weighing on consumer and business sentiment. Falling yields and a retreat in the U.S. dollar, which slipped 0.4% in the previous session before recovering slightly, continue to support gold by lowering the opportunity cost of holding the metal.

Technical Outlook and Market Sentiment

Gold has climbed nearly 33% year-to-date, driven by ongoing geopolitical tensions most notably conflicts in Ukraine and the Middle East and heightened concerns over trade fragmentation. While the metal has largely traded within a tight range in recent months, this week’s momentum has pushed prices closer to the record highs seen in April, when gold briefly surpassed $3,500 an ounce.

Spot gold hovered at $3,430.75 an ounce in Singapore morning trading, suggesting near-term consolidation but strong underlying demand. Silver remained flat, while platinum and palladium experienced mild declines, reflecting more tepid sentiment in the broader precious metals complex.

In the absence of major U.S. data releases this week, market participants will closely monitor signals from the Federal Reserve during its July policy meeting. If Powell signals concern over the cumulative impact of tariffs and a softening labor market, gold could make another push toward all-time highs. Until then, trade headlines and bond market moves will likely continue to dictate short-term price action for the yellow metal.

Source: Reuters

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Overview of the Trade Deal

On July 23, 2025, U.S. President Donald Trump and Japanese Prime Minister Shigeru Ishiba confirmed a landmark bilateral trade agreement. Central to the deal is a tariff framework: while the Trump administration had threatened to impose a 25% blanket tariff on Japanese imports by August 1, that figure was ultimately scaled back to 15%. This marks a significant shift in tone, particularly for Japan’s auto industry, which contributes more than a quarter of Japan’s total exports to the U.S.

The agreement also promises improved access for U.S. agricultural products especially rice and automobiles into the Japanese market. While Trump emphasized the scale of Japanese investments into the U.S., totaling $550 billion, neither he nor the White House provided a full text of the agreement. Ishiba, meanwhile, announced that his administration will review the deal negotiated by Ryosei Akazawa in Washington before releasing its full content.

Implications for Tariffs and Trade

The agreement avoided what many economists feared would be a damaging 25% tariff regime. The new 15% rate, while still significant, eases immediate pressure on Japanese exporters. Given that the U.S. is Japan’s largest export destination, the initial threat had posed a potential 1% hit to Japan’s GDP, according to analyst forecasts.

Ryosei Akazawa’s role in the negotiation process has been extensive, involving eight trips to Washington since April 2025. The talks involved high-level engagement with Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, underlining the strategic importance of the deal to both nations.

Political Fallout and Japanese Domestic Politics

The announcement came shortly after a challenging political moment for Ishiba, whose ruling Liberal Democratic Party suffered a loss of majority in Japan’s upper house elections. Faced with internal calls to resign, Ishiba reaffirmed his commitment to economic stabilization and trade resolution with the U.S., hoping to use the agreement as a pivot point for regaining political footing.

Markets in Tokyo responded swiftly and positively. The Nikkei index jumped 2% in early trading, led by automakers. Toyota shares surged by 10%, and Honda rose by 9%, signaling investor relief over the reduced tariff rate. However, bond markets showed volatility Japanese 10-year bond futures dropped to 137.68 yen, their lowest since March 28, reflecting renewed uncertainty about Japan’s fiscal path post-election and under the new trade conditions.

The U.S.-Japan trade deal may have averted a major economic blow, especially for Japan’s automotive and export sectors. While it remains to be seen whether the promised $550 billion in Japanese investments will materialize, and how much of the deal truly favors long-term structural change, the agreement offers short-term relief and political breathing room for both Trump and Ishiba. Full transparency on the trade terms, however, will be critical for sustained investor and public trust in both nations.