Japan is the world’s fourth largest economy, meaning it accounts for a large part of global trade and growth.
Tokyo imports a great deal of energy and food from overseas and is dependent on exports including electronics, machinery and motor vehicles.
The US is its biggest export market.
Some experts had warned that Trump’s tariffs could knock as much as a percentage point off Japan’s economy, pushing it into recession.
With lower tariffs, exporters will be able to do business in the US more cheaply than if Trump had stuck to an earlier threat to levy higher taxes.
And the deal brings certainty, which allows businesses to plan.
The announcement also strengthened the Japanese yen against the US dollar, giving manufacturers more purchasing power to buy the raw materials they need to expand their businesses.
The US agreement is particularly good for Japan’s auto giants like Toyota, Honda and Nissan. Previously, American importers had to pay a 27.5% levy when they shipped in Japanese cars.
That is now being reduced to 15%, potentially making Japanese cars cheaper compared to the likes of rival China.
Having said that, US automakers have signalled they are unhappy with the deal.
They are concerned they have to pay a 25% tariff on imports from their plants and suppliers in Canada and Mexico compared with Japan’s 15% rate.