(Bloomberg) – Japanese stocks were flat on Tuesday, stabilizing after an early swing after U.S. President Donald Trump said he would impose tariffs on imports from Canada and Mexico next month. Following a Wall Street Journal report, President Trump's pledge dashed hopes for a more moderate trade policy.
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The TOPIX index fell 0.1% to 2,709.32 as of noon Tokyo time, dropping as much as 0.6% at one point. The Nikkei Stock Average rose 0.1% to 38,951.77 yen.
“It will be difficult for investors to own stocks that are subject to tariff risk,” said Yoshitaka Suda, cross-asset strategist at Nomura Securities. However, Suda does not expect a sharp decline in stock prices, given that hedge funds have already reduced their exposure to both global and Japanese stocks.
Automakers seen as most vulnerable to tariffs, with large exports to the U.S. from factories in Japan and Mexico, fell, with Mazda Motors Corp. suffering losses of up to 4.1%.
Yugo Tsuboi, chief strategist at Daiwa Securities, said there will be temporary damage to the stock prices of some automakers that ship from Mexico to the United States. He added that unless there were universal tariffs, it would not lead to a significant deterioration in sentiment that would weigh on Japanese stocks as a whole.
Despite the market volatility, investors remain confident the Bank of Japan will push through with a widely expected interest rate hike on Friday.
Money market products have priced in a 90% or more chance of a 0.50% rate hike. However, bank stocks fell as investors locked in profits from recent gains ahead of the Bank of Japan's policy meeting.
Chip-related stocks were a bright spot, with the MSCI Japan Semiconductor Index rising about 1% as some market participants felt reassured by President Trump's silence on the issue of curbing chip exports to China. .
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20 of the 33 industry indexes on the Tokyo Stock Exchange rose. The TSE TOPIX Other Products Index rose the most, while the TSE TOPIX Petroleum and Coal Products Index fell the most.
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The MSCI AC Asia-Pacific index rose 0.2%.
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Topix index is up 7.9% from last year, MSCI AC Asia Pacific index is up 11%
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TOPIX index members trade at 14.5 times expected earnings over the next 12 months
