Nikkei 225 Surges Past 45,000 for the First Time as Japan's 15% Auto Tariff Takes Effect

TradingKey - On Tuesday, September 16, the Nikkei 225 Index reached new intraday and closing highs, hitting an all-time intraday peak of 45,055.38 and closing up 0.3% at 44,902.27. This marks the first time the index has surpassed the historic 45,000-point milestone, continuing its recent upward trend. Last week, the Nikkei 225 set record highs on three separate occasions.

The current rally is driven by multiple factors. A strong performance by U.S. stocks, with both the S&P 500 and Nasdaq indices reaching new highs the previous day, helped boost Japanese equities. Additionally, the market remains optimistic amid expectations of further interest rate cuts by the Federal Reserve.

On the policy front, the resignation of Japan's Prime Minister, Shigeru Ishiba, on September 7 has brought Sanae Takaichi, known for her fiscal expansion stance, into the spotlight as a leading candidate. If elected, she is likely to increase fiscal stimulus, potentially boosting the Japanese economy and stock market.

Another positive factor is the implementation of U.S. tariffs on Japanese autos and parts, which have been reduced from a previous rate of 27.5% to 15%. This new policy took effect from noon on Tuesday, Tokyo time.

The tariff reduction is part of an agreement reached between the U.S. and Japan on July 22, under which the U.S. now imposes a baseline 15% tariff on nearly all imports from Japan. Analysts believe this agreement removes a layer of long-standing market uncertainty and benefits Japan's automotive sector, a cornerstone of its economy, thereby potentially invigorating the broader Japanese economy.

Buoyed by these developments, market optimism for Japanese stocks is high. Nomura Asset Management noted that Japanese equities remain attractively valued, continue to attract foreign capital, and are supported by Warren Buffett's endorsement. With tariff-related uncertainties resolved and Japan's export industries recovering, there is potential for further gains in Japanese stocks.

However, some economists caution that the tariff reduction, which may seem beneficial, could still impact Japan's auto industry. With tariffs still significantly above the pre-trade-war rate of 2.5% from this April, the new 15% rate represents a substantial increase.

Tomonori Kiyabayashi, a senior manager at Nakano Asset Management, warns that current stock prices may have prematurely priced in anticipated gains for the next fiscal year, and that caution is warranted given the elevated market levels.