US President Donald Trump announced that a Japan tariff deal has been reached, setting reciprocal tariffs at 15%. Japanese media is reporting that Japanese automakers will see their 25% tariff reduced to 15%. The Nikkei 225 rose 3.5%, with Toyota 7203 shares bouncing over 14%.
Why it matters: A US-Japan tariff deal that sets reciprocal tariffs at 15%, including that for Japanese automakers, is generally positive to our outlook for Japanese stocks as it takes our bear-case scenario for average 32% tariffs off the table and improves the risk outlook for the broad market.
- The 15% tariff rate would be close to our base-case scenario of an average 14% tariff rate. But if it is confirmed that Japanese automakers see a reduction to 15%, this would be better than the base-case 25% that is currently reflected in our valuations of Toyota, Nissan, and Honda.
- Nissan and Honda are more sensitive to US tariffs as they have a smaller US production presence. Hence, a fall in tariff to 15% from 25% will see our fiscal 2026 forecast of Nissan’s operating loss narrow by 33%, while Honda’s and Toyota’s profits will improve by 28% and 8%, respectively.
The bottom line: With the reciprocal tariff rate at 15%, our base-case view that tariffs should have a limited direct impact for most industries in Japan is unchanged. The key risk remains the indirect impact of slower global demand, given ongoing tariff uncertainty.
- Japanese equities remain selectively attractive. Our coverage indicates around a 10% discount to our fair value estimate. We think the move by Japanese companies to improve capital efficiency and boost shareholder returns is a positive long-term trend for investors.
- At our base-case view, it remains the auto industry that bears the brunt of the negative tariff impact on earnings, but the market had already reflected the 25% tariff rate in their share prices. Toyota remains our preferred Japanese automaker.
