Under the double pressure of tariffs and the rising yen, Japanese car giants Toyota and Honda are facing a major performance test.

Understanding that, with the continuous strength of the Japanese yen and the severe erosion of profits due to the US government's automotive tariff policy in the first half of this year, despite sales still showing resilience, the two giant Japanese automakers - Toyota Motor Corp. Sponsored ADR and Honda Motor Co., Ltd. Sponsored ADR may present a mixed performance in their earnings reports to be released this week. According to the consensus expectations of Wall Street analysts compiled by the institutions, Toyota Motor Corp. Sponsored ADR's first quarter operating profit may decline. Although the company recorded record global sales in the first half of the year driven by a rush before the official implementation of the Trump administration-led special tariffs on complete vehicles and components, the Bloomberg Intelligence analyst team pointed out that factors such as price promotions in key markets, rising supply chain costs, and up to 25% tariffs on automobiles before a US-Japan trade agreement could drag down its overall performance. Bloomberg Intelligence also believes that Honda Motor Co., Ltd. Sponsored ADR's operating profit may also see a slight decline for the same reasons. In June this year, Japanese automakers generally cut export prices to the US by 19%, marking the largest price reduction since 2016 to sacrifice profit margins in response to tariff turmoil and maintain competitiveness in the North American market. Japanese chief trade negotiator Kazuyoshi Akaba stated last Friday that he will continue to urge the US government to rapidly reduce tariffs on cars and components to 15% as promised in the trade agreement. Therefore, with the US government's reduction of import tariffs on Japan (including automobiles), this financial report will undoubtedly have a lag effect, and the market will pay more attention to the performance guidance and future outlook provided by the management. According to the latest report by Nikkei News, Japan's largest automaker Toyota has raised its global production target for the fiscal year 2025 to 10 million vehicles. As for Honda's performance expectations, the recent announcement by the US government to relax tariffs on Japanese imports, especially complete vehicles, may bring significant relief, with the Morningstar analyst team expecting a 28% increase in profit for the company in the fiscal year. The unexpected US-Japan trade agreement reached on July 23rd instantly transformed the losers in Japan's stock market this year into big winners. This unexpected US-Japan trade agreement may be a turning point for the fate of multiple sectors in the Japanese and global stock markets - the previous losers turning into winners, and vice versa. In the initial stock market performance after the agreement, the list of gainers was dominated by large Japanese automakers, with gains generally exceeding 10%. Honda (HMC.US) and Toyota (TM.US) also saw ADR gains of over 10% after the announcement of the US-Japan trade agreement on the trading day in the US stock market; following a significant reduction in equivalent tariffs on Japan and automobile tariffs by the US, these previously poor-performing automotive stocks saw a "liberating" super rebound. Meanwhile, defense and retail stocks in the Japanese stock market, which have been performing strongly recently, saw significant sell-offs, almost equaling the drops. At the time, US President Donald Trump announced on social media that the US had reached a trade agreement with Japan, setting tariffs on Japanese goods at 15%, which surprised investors and eased the previous threat of 25% tariffs. As for automobiles, Trump announced a 12.5% tariff on imported cars from Japan, combined with the previous 2.5% tariff rate, totaling 15%, a significant reduction from the previous 25% level. With rising Japanese government spending and the impact of US tariffs on the export performance of Japanese industrial giants, the performance of Japan's defense market department will also be closely watched by the financial markets, supporting sales and profit margin growth for Mitsubishi Heavy Industries and Kawasaki Heavy Industries. Jefferies analyst Sho Fukuhara stated that tariff-related pressures are expected to drag down Kawasaki Heavy Industries' power transport business, while its defense sector is expected to drive profit margin expansion. The Bloomberg Intelligence analyst team also stated that with support from the restoration of production of Boeing Company-787 under American Airlines Group Inc., profit margins for Mitsubishi Heavy Industries' aviation, defense, and aerospace business departments may exceed market expectations and company performance targets.