Asian markets experienced a notable upswing on Wednesday, with Japan’s stock market leading the gains amid growing optimism over a potential easing of U.S.-China trade tensions.
The positive momentum followed a strong overnight performance on Wall Street, where major indices rose sharply, displaying investor hopes for a de-escalation in the prolonged trade dispute between the world’s two largest economies.
The renewed market confidence was sparked by remarks from U.S. President Donald Trump, who indicated that the final tariffs on Chinese imports “won’t be anywhere near as high as 145%,” but “won’t be 0%.” This suggested a possible moderation in the tariff escalation that had unsettled global markets in recent months. Trump also reassured investors by stating he has no intention of removing Federal Reserve chair Jerome Powell before the end of his term, easing concerns about the central bank’s independence and future monetary policy direction.
Japan’s Nikkei 225 index spearheaded the regional rally, surging nearly 2% in early trading and continuing an upward trend that has pushed the index to levels not seen in decades. The Topix index also rose by approximately 1.9%, signalling widespread strength across various sectors. This rally shows a longer-term shift in Japanese equities, supported by ongoing corporate governance reforms and a domestic economy showing signs of escaping persistent deflation, aided by solid wage growth and improved pricing power among companies.
South Korea’s Kospi index increased by 0.86%, with the Kosdaq small-cap index adding 0.62%, buoyed by gains in technology and automotive shares. Australia’s S&P/ASX 200 also advanced 1.55%, helped by a rebound in mining stocks as commodity prices stabilised. Meanwhile, futures for Hong Kong’s Hang Seng index pointed to a firmer open, suggesting improving investor sentiment across the region.
In the United States, equities rebounded strongly overnight after steep losses earlier in the week. The Dow Jones Industrial Average surged by over 1,000 points, or 2.66%, closing at 39,186.98. The S&P 500 climbed 2.51% to 5,287.76, while the Nasdaq Composite gained 2.71%, finishing at 16,300.42. This recovery was largely driven by hopes that the U.S. and China might dial back their trade hostilities, following Trump’s tariff comments and a temporary pause on tariff hikes affecting multiple countries, though China was notably excluded from this reprieve.
The backdrop to these market movements is a complex trade environment where tariffs between the U.S. and China have escalated dramatically over recent months, reaching punitive levels that have disrupted global supply chains and business operations. Despite this, some analysts argue that the impact on China’s economy remains limited due to its relatively low exposure to U.S. markets. Nonetheless, the ongoing standoff has created uncertainty, with both sides maintaining strong rhetoric and retaliatory tariffs.
Investor enthusiasm in Japan is also bolstered by a decade-long push for corporate governance reforms aimed at enhancing capital efficiency and shareholder returns. This has led to increased share buybacks and a focus on profitability, attracting foreign investors back to the Japanese market. The introduction of tax-advantaged savings schemes like the Nippon Individual Savings Account (NISA) has further encouraged domestic retail participation in equities.
While the recent rally is encouraging, market watchers caution that risks remain. Potential shifts in Bank of Japan monetary policy, continued U.S.-China trade tensions, and global economic uncertainties could introduce volatility. However, the current environment of reduced tariff escalation and reassurances on central bank independence has provided a welcome boost to investor sentiment across Asia.