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Japanese market reacts favorably to Abe-Trump summit, split over economic dialogue

Japanese market players hailed the outcome of the recent meeting between Prime Minister Shinzo Abe and U.S. President Donald Trump, in which the latter withheld criticism over Japan's auto exports to the U.S. as well as claims that Japan has driven down the value of the yen.

Concerns over the possible revival of Japan-U.S. trade friction had weighed heavily on the Japanese market over the past few weeks. The summit, however, allayed such concerns, and observers now expect stock prices to move upward.

"To be honest, I was surprised. I think Japan got what it had desired to get," said Yasuhide Yajima, a chief economist at NLI Research Institute.

Mitsumaru Kumagai, a chief economist at Daiwa Institute of Research, remarked, "I got the impression that Japan's diplomatic team went out of its way to carefully prepare (for the summit)."

Prior to the Abe-Trump meeting, many market players had expected that the U.S. president would call Japan's trade surplus with the U.S. into question and demand that Japan rectify the situation. As there were also concerns over a possible attack by Trump on what he claims to be the Bank of Japan's devaluing of the yen, the foreign exchange market on Feb. 7 saw the yen appreciate to reach roughly a two-month high against the dollar.

"While market players had appeared defensive (over the possible outcome of the summit talks), their worries have proven unfounded," Norihiro Fujito, head of the investment information service section at Mitsubishi UFJ Morgan Stanley Securities, commented. "With investors' biggest concern fading away, we expect the Nikkei stock average to top the 19,600 yen level, the high marked in January," he said.

The next biggest concern among market players and observers is how the economic dialogue between Deputy Prime Minister and Finance Minister Taro Aso and U.S. Vice President Mike Pence will unfold. As Pence is known to be a moderate who formerly served as governor of Indiana, home to a Toyota Motor Corp. assembly plant, "Japan may be able to lead bilateral negotiations at its own pace," Kumagai said.

Yajima, meanwhile, offered an opposing view, saying, "As Pence is the vice president of the Trump administration, he would start criticizing Japan if no progress was made over job creation and the trade balance. We can't be too optimistic."

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