Japanese car makers led a surge in the Nikkei share average to a one-year peak today, after Tokyo reached a trade deal with Washington, ending a months-long stalemate.
Under the agreement, Japanese exports to the US face a 15% levy, down from a threatened tariff of 25%. Specific duties on car, which account for more than a quarter of Japan's US exports, also fell to 15% from 25%.
The Nikkei rallied 3.5% to end the day at 41,171, its highest close since July last year.
The Tokyo Stock Exchange's transport equipment index soared nearly 11%, with Toyota Motor surging more than 14%.
The clarity on tariffs bolstered the case for the Bank of Japan to resume raising interest rates, lifting short-term Japanese government bond yields.
"As long as the political situation doesn't deteriorate too much more, we suspect Japan's equity rally has further to run," Capital Economics head of Asia Pacific markets Thomas Mathews wrote in a note.
For the rates market, "our sense is that investors are still underestimating how fast the central bank will hike this year and next," Mathews said.
The Bank of Japan will meet on policy next week.
Bank of Japan Deputy Governor Shinichi Uchida said today that the trade deal greatly reduces uncertainty over the economic outlook, but also warned that risks to activity and prices were skewed to the downside.
"I don't think this (trade deal) alone will lead to a Bank of Japan rate hike next week, but the possibility of a rate hike between September and October has increased," said SMBC chief currency strategist Hirofumi Suzuki.
"However, if anything, political uncertainty is having more of an impact on the market, and the pressure for yen depreciation is likely to continue," he added.
