Toyota Motor Corporation (TM) saw its stock price surge 13.36% in pre-market trading on Wednesday, as investors reacted positively to a newly announced trade agreement between the United States and Japan. The deal significantly reduces tariffs on Japanese auto exports to the US, providing a major boost to Japanese automakers.

The primary catalyst for Toyota's stock rally is the reduction of auto tariffs from the previously threatened 25% to 15%. This move is expected to substantially improve Toyota's competitiveness and profitability in the crucial US market. Morningstar analyst Lorraine Tan noted that the lower tariff rate would improve Toyota's fiscal 2026 profit forecast by 8%, highlighting the deal's potential long-term benefits for the company.

The trade agreement, announced by US President Donald Trump, includes a reciprocal 15% tariff on imports from Japan and a commitment from Japan to invest $550 billion into the US economy. This deal not only eases economic uncertainty for Japanese automakers but also opens up opportunities for increased market share in the United States. The positive sentiment extends beyond Toyota, with other Japanese and even European auto stocks experiencing significant gains in response to the news.