Car racing wildly, military industry and real estate ebbing! US-Japan trade agreement rewriting Japan's stock market rankings.

The unexpected achievement of the US-Japan trade agreement has instantly transformed the losers of the Japanese stock market this year into big winners. The surprising US-Japan trade agreement announced on Wednesday could be a turning point for the fate of various sectors in the Japanese and even global stock markets - the previous losers have turned into winners, and vice versa. In the initial market performance after the agreement was announced, the rising stocks were dominated by large Japanese automakers; after the US significantly reduced its equivalent tariffs on Japan and automotive tariffs, these previously underperforming automotive stocks saw a "breakthrough" super rebound. At the same time, the defense and retail stocks that have been performing well in the Japanese stock market recently experienced significant sell-offs, almost seeing equal declines. As the market speculated earlier that Japanese Prime Minister Shizo Abe would resign soon, causing a significant rise in Japanese government bond yields, the winners and losers in the Japanese stock market further reshuffled. Real estate companies with high debt levels and sensitivities to rising financing costs may continue to be under pressure, while financial giants such as banks are expected to benefit. Shizo Abe later denied media reports of an immediate resignation, but the market is still pricing in the possibility of his resignation in August, as the ruling coalition led by him has lost the majority in both houses of the Japanese parliament. After the ruling coalition of the Liberal Democratic Party and Komeito lost in the 27th House of Councillors election in Japan on the 20th, the support rate of Shizo Abe's cabinet hit a historic low, and demands within the Liberal Democratic Party for the resignation of Shizo Abe, who is also the party president, began to emerge. US President Donald Trump stated on social media that the United States had reached a trade agreement with Japan, setting tariffs on Japanese goods at 15%, which surprised investors and was a relief from the previously threatened 25% tariff. Just a few days ago, the ruling coalition led by Japanese Prime Minister Shizo Abe suffered a defeat in the House of Councillors election, failing to win a majority, raising doubts about his tenure in office. Trump also stated on social media that Japan will further open up its national trade with the United States, with a focus on automobiles and trucks, rice, and certain other agricultural products, and invest $550 billion in the United States. Insiders revealed that in the trade negotiations between Japan and the US, for automobiles, the US will impose a 12.5% tariff on cars imported from Japan, in addition to the previous 2.5% tariff rate, totaling 15%, a significant reduction from the previous 25% tariff level. Anna Wu, a cross-asset investment expert at VanEck in Sydney, stated after the US-Japan trade agreement was reached, "This reflects Shizo Abe's political shift from a strong leader to a more conciliatory stance. This is beneficial for the global stock market, and the yen is strengthening again, but it is not enough to trigger arbitrage trade closings. Therefore, I expect the Japanese and Asian stock markets to have an exciting bullish day, boosting overall market sentiment globally." Andrew Jackson, head of Japan stocks strategy at Ortus Advisors in Singapore, said, "The market seemed to have priced in at least a 20% tariff, so the result of 15% is better than expected, and the automotive sector is leading the way up. The sector had been heavily shorted earlier, so short-term bears were forced to cover." The following are the long-term winners and losers in the Japanese stock market that may be driven by the US-Japan trade agreement and the potential departure of Shizo Abe: Winners Automakers: The United States has agreed to reduce Japanese car tariffs from 25% to 15%, which was the biggest surprise of the US-Japan trade negotiations. Many Wall Street analysts initially expected that even if a trade agreement was reached to lower equivalent tariffs, automotive tariffs would remain at 25%. According to a research report from the Goldman Sachs Japan stock team, the lowering of tariffs will significantly reduce the impact on the operating profit of Japan's seven supercar companies this fiscal year from the previous estimate of 3.47 trillion yen to 1.89 trillion yen. The automotive sector of the Japanese TOPIX index soared 11% on Wednesday, marking the largest single-day increase since August 2024; shares of Toyota, the largest automotive giant by market value, surged 14%. Machinery manufacturers: After the US-Japan trade agreement was reached, the Japanese government promised to invest $550 billion in the United States. If auto manufacturers expand their investment in the United States as a result, machinery companies will also benefit significantly. The stock price of global machinery manufacturing leader Fanuc surged 12% in Tokyo, and industrial robot and automation manufacturer Yaskawa saw an 11% increase in its stock price. Large commercial banks: The rise in interest rates and government bond yields is very favorable for banking giants in terms of lending income. Masayoshi Ueda, deputy governor of the Bank of Japan, stated that this trade agreement will push the Bank of Japan closer to an interest rate hike cycle by significantly improving the prospect of suitable economic growth conditions. Affected by the US-Japan trade news, overnight index swaps indicated a probability of over 80% for the Bank of Japan to raise interest rates again before the end of the year; the yield on Japan's 10-year government bonds hit a new high since 2008. Losers Defense-related stocks: National defense contractors such as IHI Corp., which have recently surged as safe-haven assets, saw significant profit-taking. Rumors of Shizo Abe's resignation further hit this sector, as Shizo Abe has always been seen as a "national defense and military enthusiast," and his departure was interpreted by some investors as a significant positive news. Domestic-oriented safe-haven stocks: Retail giants like Ryohin Keikaku and sushi chain Food & Life, which have had a strong performance in the Japanese stock market this year and are closely related to the domestic demand market in Japan, may face significant selling pressure in the short term. Naoaki Fujiwara, senior fund manager at Shinkin Asset Management, stated that safe-haven domestic stocks purchased to avoid tariff risks may see a reversal. Real estate companies: If Shizo Abe's departure is seen as bringing greater fiscal spending and pushing up Japanese government bond yields, real estate companies with high debt levels will face significant pressure. Some fund managers believe that higher interest rate burdens will bring fundamental deterioration pressure to real estate companies. The election results where the ruling coalition lost in both houses of the parliament are not good news for the entire Japanese assets, especially the possibility of tax cuts proposed by the majority parties other than the Liberal Democratic Party might lead to a major expansion of the Japanese fiscal budget. Therefore, after the news of the ruling coalition losing its majority in the House of Councillors was announced, the long-term (10 years and above) Japanese government bond yields are likely to rise rapidly, possibly causing another "Japanese government bond storm" that briefly collapsed the stock, bond, and currency markets and could potentially strike the global financial markets once again.