Investors beware: Japan, the long-presumed safe haven, is hit

AllAfrica

4 days ago

The reimposition of steep US tariffs on Japanese goods should not have come as a surprise. Yet, the global investment community has largely responded with indifference.
That's a mistake because the significance of Japan's inclusion in the new wave of 'reciprocal tariffs' from the Trump administration goes far beyond headline rates or temporary trade friction.
This is not simply a trade dispute; it's a signal that marks a deeper decoupling between the United States and its traditional economic partners in Asia, and one that forces a profound rethink of investment strategy in the world's most interconnected region.
Japan's 25% tariff rate – set to take effect on August 1 – comes after months of calibrated pressure. Initially framed as a negotiating tactic back in April, the tariffs are now policy.
Prime Minister Shigeru Ishiba's response was characteristically measured, calling the move 'truly regrettable' while recommitting to talks.
However, beneath the diplomatic tone lies an undeniable truth: Japan is being pulled into the gravity of a new global trade order where loyalty no longer guarantees exemption.
This should concern investors – not just in Tokyo or Seoul, but in Frankfurt, London, Singapore and New York.
For decades, Japan has occupied a unique position. It's been a geopolitical ally of the United States, a cornerstone of the rules-based trade system and a technological powerhouse driving growth across the Asia-Pacific.
It's been treated, in policy terms and in the minds of investors, as the exception to the volatility that has plagued other export-driven economies. That mental model is no longer viable.
The implications of Japan's tariff exposure aren't limited to the Nikkei or the yen. They extend across multiple asset classes, industries and regional dynamics.
Consider, for instance, the impact on the pan-Asian supply chain. Japan's advanced components – particularly in semiconductors, autos and precision machinery – are integral to production systems stretching from Malaysia to Vietnam.
Disruptions at the Japanese node will reverberate across these networks, raising input costs, elongating delivery timelines and destabilizing margins.
We're already seeing other regional economies scramble to reposition. South Korea is pushing Washington for tariff reductions on cars and steel. Malaysia has reiterated its commitment to negotiating a more 'balanced' trade framework. Thailand, facing a 36% tariff on its exports, has publicly expressed hope – but not confidence – that the rate might be lowered.
These aren't marginal economies. They're core in Asia's trade architecture, and they are now contending with significant uncertainty.
For investors, this evolving backdrop demands urgent reassessment.
The most immediate channel of transmission is through currency markets. Tariff pressure will amplify depreciation incentives across several Asian currencies – notably the yen, won, and baht—as governments seek to preserve export competitiveness. That introduces risk and opportunity in equal measure.
For unhedged investors in Japanese or regional equities, this could quietly erode returns. For currency traders and global macro funds, it's a dynamic to be actively priced.
More broadly, Japan's vulnerability undermines a key pillar of regional risk management.
Historically, if volatility rose in China or emerging Asia, capital would rotate into Japanese assets as a relative safe haven.
That reflex is now being challenged. With Japan itself caught in the geopolitical crossfire, we could see a more complicated, less predictable pattern of regional capital flows, particularly as institutional investors recalibrate Asia exposure in search of insulation from policy shocks.
There is also the inflation question. Tariffs, by design, raise prices – directly through higher duties and indirectly through bottlenecks.
With Asia still absorbing the effects of higher interest rates, the introduction of trade-based price shocks complicates the macro environment. Central banks from Tokyo to Jakarta must now weigh the need to support growth against the risk of imported inflation. That balancing act is already difficult and these tariffs tilt the scale further.
The architecture of trade in Asia is shifting. And investors should anticipate that shift accelerating. Some countries – Vietnam, India, Indonesia – may benefit from re-shored investment or supply chain diversification. But even they must manage the complexity of overlapping regulatory regimes, new bilateral demands and increasingly binary strategic alignments between China and the US.
This is the deeper trend: the end of a single, cohesive Asian growth story.
We're moving into a landscape where economic outcomes in the region are increasingly dictated by how governments manage their exposure to geopolitical risk, rather than by structural productivity gains or demographic tailwinds alone. This changes the calculus for everything from portfolio construction to FX hedging, from corporate earnings projections to sovereign debt pricing.
In that context, the idea that Japan can absorb this latest round of tariffs and return to normality is dangerously complacent. It ignores the evolving reality that globalization – at least in its pre-2016 form – is not merely fraying; it is being dismantled consciously.
From an investor's perspective, this demands two simultaneous actions.
First, risk mitigation: trimming exposure to vulnerable sectors, re-evaluating yen-linked positions and stress-testing Asia portfolios under a sustained fragmentation scenario.
Second, opportunity capture: identifying new regional winners, particularly those with domestic demand resilience, favorable trade relations and technological independence.
But, most of all, it requires mental adaptation.
The notion that Japan is immune to geopolitical risk because of its alignment with the US is no longer credible. Investors who fail to internalize that will likely misprice Asia for years to come.
Markets are not yet fully awake to this. But they will be. August 1, the day Japan's tariffs take effect, may well be remembered as the moment that shifted perceptions, not just policy.
Nigel Green is CEO of deVere Group .