Tariffs Drive 'Significant Disruption' Despite U.S.-China Deadline Update

The blue-chip Nikkei 225 index in Japan is setting new all-time highs on Tuesday, as Asian shares rally on the deferral of trade talks with China.

The Nikkei 225, which captures the performance of 225 large-cap Japanese stocks, touched a record 42,999.71 during Tuesday trade in Tokyo. It closed just off that level at 42,718.17, also a record finish, up a strong 2.2% on the day.

The levels set today mean Japanese stocks have eclipsed the record marks set in July 2024. The previous intraday high came on July 11, 2024, at 42,426.77.

It had appeared for many years that Japanese stocks would never recapture the levels set in 1989, during Japan’s bubble years. But they have finally done so, and on Tuesday forged new ground.

Soft Spot for Softbank

One of my favorite Japan plays, Softbank Group SFTBY (T:9984), has helped power Tokyo’s advance. It is up 6.9% on Tuesday to set another record high, closing at ¥14,825. Founder Masayoshi Son is pushing the tech investment company into artificial intelligence, and strong prospects for those efforts have seen Softbank shares soar 60.6% so far this year.

Softbank is also exploring a Wall Street listing for its Japan payments app PayPay. Reuters reports that the company has selected investment banks Goldman Sachs GS, JP Morgan Chase JPM, Mizuho Financial Group MFG (T:8411) and Morgan Stanley MS to organize an initial public offering. Softbank may raise up to $2 billion with a Q4 listing.

Tokyo’s markets were closed for a holiday on Monday. Asian shares opened on an optimistic note but sank in late trade, as investors fret about U.S. inflation data later in the day. The numbers will indicate whether trade disruption is starting to push U.S. prices higher, or slow overall growth.

Generally speaking, Japanese stocks have muddled along this year, compared with recent stellar performance. The Nikkei is up 8.7% so far this year.

Chip Equipment Gains

Tokyo stocks were set back by the drawn-out negotiations on trade with the United States, with eight rounds of talks finally resulting in an across-the-board U.S. import tariff on Japanese goods of 15%.

The Topix, capturing all of the main stocks in Tokyo, is up 11.3% in 2025, after adding 1.4% on Tuesday. The better showing for the Topix year to date indicates that investors are favoring its larger bias toward domestic plays, whereas the Nikkei 225 is skewed toward major exporters.

The Topix has set multiple record highs since July 24. It closed today at 3,066.37, also a record close.

Other tech plays in Tokyo such as Advantest ATEYY (T:6857), up 6.3% on Tuesday, are also driving Tokyo’s strong showing. The company, which supplies chipmakers with equipment to test semiconductors, is up 19.9% so far this year. It’s neutral on where the chipmakers that use its equipment are based.

Likewise, Lasertec LSRCY (T:6920) leapt 7.1% today, finally pulling it back into positive territory for the year. The company, which also makes inspection equipment for the semiconductor industry, is up 3.2% in 2025.

Any Asian chip-linked companies are benefitting from the apparent easing of restrictions for the supply of chips into China. Nvidia NVDA and Advanced Micro Devices AMD have reportedly reached a deal to split 15% of their sales into China with the U.S. government, in return for improved access.

As ever, there are cross currents on these developments. on Tuesday, we heard that the Chinese government is instructing companies to restrict their use of lower-grade H20 chips from Nvidia. U.S. President Donald Trump has mentioned the potential for a version of Nvidia’s top-flight Blackwell chip to be sold in China that is “enhanced, in a negative way.”

Held Back by Heavyweights

Japanese stocks are being held back by the poor performance of a number of index heavyweights.

Toyota Motor TM (T:7203) is down 5.2% in 2025, with Honda Motor HMC (T:7267) off 4.4% as car companies suffer the first effects of trade disruption. Even if both Toyota and Honda have major U.S. manufacturing operations, they see car construction disrupted by higher tariffs on components.

Japanese chipmakers are also suffering because they lack U.S. production, leaving them surprise losers on the tariff front, as I noted in my last story. Tokyo Electron TOELY (T:8035) shares are down 11.7% year to date, and Renesas Electronics RNECY (T:6723) is down 13.0%. Renesas has expanded its production into India, a country where trade negotiations with Washington have reached a disastrous impasse.

As a result, the moves in Japan this year are far behind the showing in South Korea, where Samsung Electronics SSNLF (KR:005930) has powered a 33.0% rally in the Kospi. That’s the strongest showing in Asia.

Samsung Drives Seoul Shares

Samsung shares are up 33.2% this year, basically the exact performance of the Kospi, where it is by far the largest component. Korean rival SK Hynix HXSCL (KR:000660) has rallied even further, up 57.1%, rewarded for earlier moves into AI.

The Hang Seng in Hong Kong is the second-best performing major index in Asia, with Hong Kong-listed China plays driving the 27.2% advance.

Ironically, Japan’s markets benefitted more on Tuesday from any easing of trade tensions represented by Trump’s decision to push back the deadline on tariff talks with China by another 90 days. With tariffs due to escalate on August 12, Trump has issued a second 90-day reprieve to push the deadline to November 10.

Meanwhile, U.S. tariffs on Chinese goods remain at 30%, while China is charging a 10% tariff on U.S. imports. They were scheduled to escalate as high as 145%, with both Beijing and Washington agreeing such levels represent an effective embargo on trade.

Whether it’s Japan, South Korea or China, all major exporting nations face a sharp escalation on the import tax at U.S. ports. Tariffs have shot up from an average 2.8% at the start of this year to the highest levels seen since 1933, when pressures from the Smoot-Hawley Tariff Act contributed to the Great Depression.

So, we are seeing significant disruption on trade already, even if any final decision on trade between the world’s largest two economies has been pushed down the road again. It was a lukewarm welcome from markets to this temporary truce.

Stocks in Hong Kong nudged ahead on Tuesday, with the Hang Seng eking out a 0.3% gain. For mainland China, the CSI 300 added 0.5%, capturing the performance in Shanghai and Shenzhen. But so far in 2025, it’s been international investors doing the buying in Hong Kong, where they can easily access China plays, and the CSI 300 is up “only” 8.5%. As with the Nikkei, that’s relatively underperformance so far this year.  

At the time of publication, McMillan was long NVDA.