Yen slumped across the board in Asia as risk appetite surged following the announcement of a long-anticipated trade agreement between Japan and the US. The deal, which sets a 15% tariff on Japanese goods, down from the previously threatened 25%, sparked a sharp rally in Japanese equities, particularly auto stocks, which major names jumped at least 10%.
While many see the terms as more a reprieve than a win for Japan, the removal of worst-case scenarios provided a relief boost for investor sentiment. The rally extended beyond Tokyo, with South Korean automakers Hyundai and Kia also gaining on optimism that broader regional de-escalation may follow.
Meanwhile, markets appear unfazed by the deepening political crisis in Japan. Prime Minister Shigeru Ishiba’s ruling LDP lost its majority in both houses after the elections over the weekend. Speculation is swirling over his possible resignation by August. Still, the trade breakthrough is clearly dominating market focus.
In currency markets, risk-sensitive currencies lead gains, with Kiwi, Aussie, and Loonie outperforming. Yen sits firmly at the bottom, followed by Swiss Franc and Euro. Dollar and Sterling were more mixed.
In parallel, US Treasury Secretary Scott Bessent signaled progress toward extending the current tariff truce with China, set to expire August 12. He confirmed upcoming meetings with Chinese counterparts in Stockholm next week and hinted a formal extension could be arranged as early as Monday or Tuesday.
The current 90-day tariff pause has kept broader tensions in check, and any confirmation of an extension could support sentiment further. However, gaps remain on structural issues, particularly on state subsidies and tech regulation. Still, investors welcomed signs that both sides are looking to preserve momentum.
Also the US and Indonesia formally announced a framework deal under which Jakarta will remove most tariffs on US imports. In return, the US will impose a 19% tariff on Indonesian goods—lower than the 32% previously threatened under Trump’s sweeping “liberation day” plan. Both countries are expected to finalize the agreement in coming weeks.
Technically, with today’s extended rebound, focus is on 96.95 resistance in AUD/JPY. Firm break there will suggest that correction from 97.41 has completed at 95.61. Larger rally from 86.03 should then be ready to resume to 61.8% projection of 86.03 to 95.63 from 92.30 at 98.23. Sustained break there will pave the way to 100% projection at 101.90.
In Asia, at the time of writing, Nikkei is up 3.64%. Hong Kong HSI is up 1.40%. China Shanghai SSE is up 0.79%. Singapore Strait Times is up 0.46%. Japan 10-year JGB yield is up 0.075 at 1.582. Overnight, DOW rose 0.40%. S&P 500 rose 0.06%. NASDAQ fell -0.39%. 10-year yield fell -0.036 to 4.336.
Nikkei soars Past 41k on landmark US-Japan trade deal
Nikkei jumped today, breaking above the 41k level for the first time in a year after the US and Japan confirmed a long-anticipated trade deal. Investor sentiment was buoyed by the breakthrough, which reduces the threat of harsher tariffs that were set to take effect on August 1.
The agreement, publicly confirmed by both US President Donald Trump and Japanese Prime Minister Shigeru Ishiba, includes a 15% blanket tariff on Japanese imports—down from the initially threatened 25%. Japan’s chief negotiator Ryosei Akazawa called the outcome “#Mission Accomplished” in a social media post.
Trump hailed the deal as “perhaps the largest Deal ever made,” claiming Japan will invest USD 550B into the US and that Americans would receive “90% of the Profits.” Under the terms of the agreement, Japan will further open its markets to US goods, including cars, trucks, rice, and agricultural products. On the other hand, Ishiba indicated that the auto tariff rate will drop to 15% from the current 25% imposed globally.
BoJ’s Uchida see moderate growth and temporarily sluggish inflation
BoJ Deputy Governor Shinichi Uchida said in a speech today that Japan’s economy is likely to “moderate” amid slowing global growth, with underlying inflation remaining “sluggish temporarily”. He added that downside risks dominate the outlook, particularly due to high uncertainty surrounding global trade policy and its spillover effects on both domestic and external demand.
Still, Uchida maintained that if the Bank’s baseline outlook holds, gradual rate hikes will continue. With real interest rates deeply negative, the BoJ is positioned to adjust its accommodative stance, but only as long as the economic and inflation path improves as expected.
He also highlighted the crosscurrents in Japan’s inflation profile—cost-push pressures from food remain elevated, while demand-side forces are weak. How businesses adjust wages and prices in response to these forces will be central to determining the sustainability of price growth.
Australia Westpac leading index falls to 0.03%, signals weak H2
Australia’s Westpac Leading Index slipped from 0.11% to just 0.03% in May, continuing a six-month slide that points to weakening momentum heading into the second half of 2025. The index, which provides a guide to economic activity three to nine months ahead, has lost altitude from 0.33% in December, with five of eight components dragging—particularly commodity prices, consumer sentiment, and hours worked.
Westpac noted that the shift from modestly above-trend growth to an “around trend” signal marks a clear step-down in economic momentum. The bank now expects the economy to expand by only 1.7% in 2025, a slight pickup from 1.3% in 2024, but still well below historical averages.
With the RBA set to meet on August 11–12, the Leading Index adds to the case for renewed policy easing. Westpac sees the June quarter CPI, due next week, as the key swing factor. A benign reading would likely clear the way for a 25bp cut in August, followed by another in November and two further cuts in H1 2026 as the central bank gradually loosens policy amid persistent growth headwinds.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.3574; (P) 1.3635; (R1) 1.3667; More…
USD/CAD’s break of 1.3650 minor support argues that corrective pattern from 1.3538 has completed with three waves to 1.3773. Intraday bias is back on the downside for retesting 1.3538/55 support zone. Decisive break there will resume larger decline from 1.4791. On the upside, however, break of 1.3650 will delay the bearish case and bring more sideway trading.
In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.
