Japan’s Nikkei share average rose by 1.03% on April 18 to 34,730.28, marking its best weekly performance in three months with a 3.41% gain. The index hit a two-week high of 34,758.97.

Investor sentiment improved due to optimism around potential trade agreements, including talks between US President Donald Trump and Japan.

The Topix index also gained 1.14%.

Meetings in Washington between Japan’s economy minister Ryosei Akazawa and Trump showed signs of progress. Trump said a deal with Japan was a “top priority.”

Positive signals in US-EU trade tensions and tariff talks with China also boosted confidence.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Historical U.S.-Japan trade tensions follow cyclical patterns of disruption and accommodation

The current market optimism reflects a familiar cycle in U.S.-Japan trade relations that has repeated for decades.

During the 1980s, the U.S. imposed tariffs on Japanese goods and negotiated the Plaza Accord to devalue the dollar against the yen, actions that contributed to Japan’s subsequent “lost decade” of economic stagnation 1.

This historical pattern shows that initial trade tensions with Japan typically progress toward negotiated settlements, with Japanese markets responding positively to signs of resolution—similar to this week’s 3.41% Nikkei gain 2.

Prime Minister Ishiba’s characterization of current tensions as a “national crisis” echoes rhetoric from previous trade conflicts, demonstrating the importance of U.S. market access for Japan’s export-oriented economy 3.

2️⃣ Japanese equities demonstrate predictable sensitivity to U.S. trade signals

The Nikkei’s sharp weekly gain of 3.41% following positive trade signals reflects the Japanese market’s historical vulnerability to U.S. trade policy shifts.

This sensitivity was dramatically illustrated earlier this month when the Nikkei fell nearly 4% when U.S. tariffs went into effect, highlighting how quickly sentiment can reverse based on trade developments 4.

The index’s volatility is particularly notable considering it fell 12.94% from January to April 2025, followed by this week’s strong recovery—showing how trade news can trigger rapid reversals in market direction 5.