The Nikkei 225 is back in the spotlight, surging 3.41% this week, which has been its strongest performance since January.

On Friday alone (April 18, 2025), the index climbed another 1.03% to close at 34,730.28, brushing a two-week high of 34,758.97. And while the rest of the world was winding down for the Easter holidays, Tokyo’s traders were dialed in.

So what’s driving this sudden optimism?

Simple: Trade deal buzz, Trump diplomacy, and a pharma stock breakout.

Let’s unpack what happened and what this could mean for investors looking at Japan’s stock market in 2025.

Trump’s Trade Deal Hopes Light a Fire

Markets love a good narrative and right now, that story is U.S. President Donald Trump playing dealmaker again.

In recent days, Trump and Italian PM Giorgia Meloni signaled progress on easing the U.S.-EU trade tensions.
Trump tweeted about “Big Progress” in discussions with Japan’s economy minister Ryosei Akazawa, calling a trade agreement with Tokyo a “top priority.”

That’s all investors needed to hear.

With tariff talk softening and diplomacy picking up speed, the Nikkei shot up snapping a three-week losing streak.

Is Japan Entering a New Bullish Phase?

With the Bank of Japan slowly exiting ultra-loose monetary policy and inflation stabilizing, Japan’s economic outlook is arguably more balanced than it’s been in years.

Add to that a weak yen (which boosts export profits), rising wages and corporate capex, and potential global trade tailwinds…

…and you have a perfect cocktail for renewed foreign investor interest in Japanese equities.

In fact, global hedge funds and institutions have been steadily piling into the Nikkei this year, drawn by relative valuation discounts and strong balance sheets among top Japanese corporates.

For Now, Though

The Nikkei’s breakout this week isn’t just about optimism, it is about renewed faith in Japan’s role in global trade, plus the country’s long-overlooked innovation sectors (like biotech and automation).

If trade negotiations continue to gain traction and macro data hold up, Japan could be one of the quiet winners of 2025.

But keep an eye on the U.S. interest rate policy (it still affects global risk appetite), China’s economic recovery (or lack thereof), and tech regulation shifts.

For now, though? The Nikkei’s momentum suggests investors are getting back in the game.