Japanese stocks climbed significantly on Tuesday, with Tokyo’s Nikkei 225 index gaining 1% to close at 38,473.97 as investors pinned their hopes on a positive outcome from ongoing US-China trade negotiations in London. The rally demonstrates a strong risk-on sentiment, where optimism about global economic stability is currently taking precedence over concerns about Japan’s own domestic economic performance.
The positive momentum was driven by high-level talks between American and Chinese officials, which entered a second day on Tuesday. Market sentiment was particularly buoyed by reports suggesting the US may be considering an easing of export restrictions on semiconductors and other technologies to China as a key part of the negotiations.
This prospect fueled a rally in Japan’s influential tech and chip-related stocks, which are sensitive to global trade dynamics. Investors across Asia are closely monitoring the discussions, hoping for a resolution that could de-escalate trade tensions and reduce tariffs between the world’s two largest economies.
This surge in investor confidence occurred despite the release of lackluster economic data from Japan. Revised government figures confirmed that Japan’s economy contracted in the first quarter of 2025, marking its first quarterly decline in a year.
The Gross Domestic Product (GDP) shrank at an annualized rate of 0.2% in the January-March period. While this was an improvement over the preliminary estimate of a 0.7% contraction, the data still points to underlying weakness, with net trade subtracting from growth and private consumption remaining nearly flat.
For now, the Japanese market appears to be prioritizing the potential for a global economic boost from improved Sino-US relations over domestic headwinds. The Nikkei’s advance was part of a broader trend across Asia, with markets in South Korea and Hong Kong also posting gains. The focus remains squarely on the outcome of the trade talks, which investors see as a critical catalyst for near-term market direction.
