TARIFFS: Trade Deal Relief For Japan’s Vehicle Manufacturers
A trade deal has been reached between the US and Japan ahead of the August 1 deadline, which has been seen as positive by markets with the Nikkei up 2.4% but USDJPY has given up its earlier gains and is little changed at 146.64. Imports from Japan, including autos, will face a 15% tariff down from the 24% announced in April but higher than the current average below 5%. This lower rate is in exchange for $550bn of Japanese investment in the US.
- Japan is a key US ally and so a deal was expected but the US’ 2024 merchandise deficit of $69.4bn with Japan, larger than the deficit with Canada, made it a target of President Trump’s protectionism. 4.5% of 2024 US imports came from Japan, the fifth highest.
- Japan has one of the higher export shares to the US at 19.9% of total goods shipped in 2024 but at only 3.5% of GDP, it has a relatively lower impact on the economy.
Exports to the US (ex NAFTA) 2024 %
- However, certain sectors are highly exposed, especially autos. Japan is the second largest source of US personal vehicle & light truck imports at 16% of the total only behind Mexico’s 32%, and 8% of parts. Japanese autos will now face the agreed 15% duty below the universal 25% against all vehicle imports and as a result Toyota and Mazda shares have rallied.
US imports personal vehicles & light trucks % total 2024
- Japan frontloaded shipments to the US through Q1 and Bloomberg container ship tracking data signal that continued in June ahead of the earlier July 9 deadline, but vessels departing for the US are down in July. However, the value of exports to the US fell 11.4% y/y in June after rising 10.5% y/y in February.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE BONDS: ACGB Nov-32 Auction Goes Smoothly With Solid Demand
Today’s auction reflected solid pricing for ACGBs, with the weighted average yield coming in 0.74bps below prevailing mid-yields, according to Yieldbroker. Moreover, the cover ratio nudged higher to 3.3550x from 3.2100x in the previous auction.
- The slight improvement in demand at today’s auction came with the outright yield 5-10bps lower than at the time of the previous auction, and roughly 70bps below the November 2024 peak.
- Today’s bid was likely supported by expectations of further RBA easing. A 25bp rate cut in July is given an 83% probability, with a cumulative 76bps of easing priced by year-end (based on an effective cash rate of 3.84%).
- Post-auction, the cash line and XM are little changed.
CHINA: Central Bank Withdraws CNY21.5bn via OMO
- The PBOC issued CNY220.5bn of 7-day reverse repo at 1.4% during this morning's operations.
- Today's maturities CNY242 bn
- Net liquidity withdrawal CNY21.5 bn.
- The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
- The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.43%, from prior close of 1.49%.
- The China overnight interbank repo rate is at 1.35%, from the prior close of 1.35%.
- The China 7-day interbank repo rate is at 1.43%, from the prior close of 1.50%.
MNI: CHINA PBOC CONDUCTS CNY220.5 BLN VIA 7-DAY REVERSE REPO MON
- CHINA PBOC CONDUCTS CNY220.5 BLN VIA 7-DAY REVERSE REPO MON
