Japan's $550 Billion Investment Plan with the US Kicks Off Amid Tariff Threats

TradingKey - According to Bloomberg, if Japan fails to honor its investment commitments by funding projects selected by President Trump, it risks facing higher tariffs. This information is detailed in a document refining the mechanism of Japan's $550 billion investment in the US.

On September 4th, President Trump signed an executive order to officially implement the US-Japan trade agreement. Reports reveal that Japanese trade negotiator Akazawa Ryosei visited the US to formalize the agreement reached in July, along with exchanging a memorandum on Japan's investments in the US, including the allocation of investment returns.

Under the memorandum, an investment committee led by US Commerce Secretary Howard Lutnick will provide project recommendations, which Trump will choose based on these suggestions. Japan's inputs will be solicited through an independent panel within the investment committee. The investment period extends until January 19, 2029, coinciding with the end of the presidential term.

This investment mechanism aims to establish a US-based supply chain, with more precise obligations for Japan to fund Trump-selected projects than in previous versions. According to the memorandum, as long as Japan fulfills its promises and provides the necessary funding, the US will refrain from raising tariffs. Conversely, if Japan fails to meet its commitments, tariff rates will be decided by the US President. Additionally, Japan must arrange US dollar funds within 45 days of project submission for review.

Akazawa Ryosei reiterated the explanation given when the July agreement was reached, stating that Japan would provide $550 billion in investments, loans, and loan guarantees, with only 1%-2% involving actual capital investments. Analysts suggest this substantially reduces the perceived scale of Japan's actual investments. Profits will be shared in a 9:1 ratio between the US and Japan.

This investment mechanism is part of the US-Japan trade agreement. Under the agreement, the US will impose a 15% tariff on nearly all Japanese imports, while tariffs on Japanese automobiles will be reduced from 27.5% to 15%, potentially taking effect as early as next week. The agreement also imposes new import obligations on Japan, requiring market access for US manufacturing, agriculture, and energy industries, including increasing US rice imports by 75%, purchasing $8 billion worth of crops annually, and buying defense equipment and semiconductors from the US.

After Trump's signing of the executive order to lower tariffs on Japan, Japanese Prime Minister Shigeru Ishiba stated that the US-Japan tariff agreement is highly significant, expressing hope for a golden era in US-Japan relations and promoting Japanese economic growth.

Following the announcement of the US-Japan agreement's official implementation, the US dollar continued to fall against the Japanese yen, currently trading at 148.16.