The US and Japan have agreed a trade deal days ahead of the latest tariff deadline set by Donald Trump, while the European Union is more confident of a similar truce.
Under the terms of the agreement, rather than all Japanese goods being hit with a 24% tax on entry to the US, they will instead be subject to a 15% tariff.
Significantly, and unlike the US-UK deal, there is no cap on the number of Japanese cars subject to the agreed lower tariff. The levy on cars and car parts has been brought down from 25% to 15%, making it the first country to secure a reduction in the blanket 25% rate on vehicles.
Cars make up more than a quarter of all Japan's exports to the US.
Japanese steel and aluminium are still subject to a 25% tariff.
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Hours after the deal was announced, EU diplomats signalled they were more optimistic that a 15% baseline tariff deal with the US could be agreed - but preparations would continue to agree retaliatory measures in the event of the breakdown of talks.
It's just over a week until the 1 August pause on tariffs is due to end, itself a six-week extension to the 9 July 90-day freeze US President Donald Trump announced in April.
The latest deal is seen a win for all parties as Japan is a major trading partner of the world's largest economy.
To make the deal happen, Japan agreed to a $550bn (£406bn) investment package of loans and guarantees from Japanese government-affiliated institutions in key sectors like pharmaceuticals and semiconductors.
Japan will also increase purchases of US agricultural products such as rice.
Market reaction
Financial markets welcomed news of the Japan truce warmly, with stock markets rising globally.
The value of a dollar ticked up, and in Japan, the benchmark stock exchange, the Nikkei, gained sizably, and closed up more than 3.5%.
The index is comprised of many major carmakers, including Nissan, Honda, Mazda, Toyota, and Mitsubishi, which all rallied following the news.
Other Asian stock indexes closed up, including Korea's Kospi, which rose nearly 0.44%, Hong Kong's Hang Seng, which increased more than 1.6%, and Thailand's SET index, which was up more than 2.3%.
In London, the FTSE 100 hit a record high for the third consecutive day by the close.
European stock markets were shut when hopes for a breakthrough in EU-US talks emerged but their US counterparts added to earlier gains.
(c) Sky News 2025: US and Japan agree trade deal - EU more optimistic
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