Japanese trade envoy Ryosei Akazawa announced that the U.S. has agreed to amend a presidential order concerning tariffs and will refund any excess duties collected. During discussions in Washington with Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent, Akazawa confirmed there was no dispute over reciprocal tariffs.
In the new agreement, goods that had been taxed above 15% will now be capped at that rate. Those previously below 15% will face a duty of exactly 15%, which includes existing tariffs. Although Akazawa found the original order lacking, he noted U.S. officials’ regret and their commitment to timely corrections.
Amendment Implementation Timeline
Following the amendment, a new order will put into effect the agreed-upon tariff rates from July. This will include a reduction in U.S. auto tariffs from 27.5% to 15%.
With U.S. auto tariffs on Japanese cars being cut nearly in half from 27.5% to 15%, we should anticipate a rally in Japanese automaker stocks. This is a significant margin improvement for companies like Toyota and Honda, making call options on their stocks attractive for the coming weeks. The resolution removes a major point of uncertainty that has weighed on the sector.
The news should provide a tailwind for the Japanese yen as a stronger export outlook improves the country’s trade balance. The USD/JPY pair, which has seen volatility around the 155 level in recent months, may now see downward pressure. Traders could consider shorting USD/JPY futures or buying call options on yen-tracking currency funds.
This agreement removes a key risk, meaning implied volatility on affected assets is set to fall. Before this, implied volatility on major Japanese exporter stocks had ticked up over the past month as traders hedged against a negative outcome. Selling puts or implementing credit spreads on these names could be a way to profit from the expected drop in volatility.
Market Implications and Outlook
Looking at the broader market, this is a clear positive for Japan’s Nikkei 225 index. We saw a similar pattern of market relief and a subsequent rally following the easing of trade tensions back in 2019. This creates a favorable environment for buying call options on broad Japanese market ETFs like EWJ.
The impact is magnified because the U.S. is a critical market, with data from last year showing it accounted for over a third of total vehicle exports for major Japanese manufacturers. The refund of excess duties collected in error also means a direct cash injection for these companies. This reinforces the positive outlook on their near-term earnings potential.
