Jefferies is flagging a growing U.S.-Japan partnership across trade, investment and security as more consequential than many institutional investors apparently appreciate. Analyst Aniket Shah told clients this week that a recently outlined $550 billion investment deal could prove a central catalyst for expanded bilateral economic activity.
The package includes a tariff adjustment that lowers reciprocal levies from 25% to 15%, a move Jefferies says will broaden export access for U.S. firms active in manufacturing, aerospace, agriculture, energy, autos and industrial goods. The accord additionally places priority emphasis on energy, AI infrastructure and critical minerals processing, with Jefferies noting the first project under the framework is expected to be operational by March.
Jefferies also set out the financial mechanics it sees as notable: the U.S. is "positioned to retain 90% of project-level profits once costs are recovered," and the arrangement imposes a deadline for fund allocation, with all funding required to be allocated by Jan. 19, 2029.
Beyond trade and investment, Jefferies expects an increase in defense exposure tied to Japan's procurement of additional U.S. systems, specifically citing Tomahawk deployments as an example of this dynamic.
The economic relationship is already extensive. As of end-2024, Japan held $819 billion in U.S. foreign direct investment stock, concentrated in manufacturing, electronics and financial services. Japan's holdings of U.S. Treasuries climbed to $1.2 trillion by November 2025, a sum $314 billion larger than the United Kingdom's, and Japan continues to be a major holder of U.S. equities, agency debt and corporate bonds.
Security ties provide an added layer of integration. Japan hosts approximately 55,000 U.S. troops and participates in multilateral groupings such as the Quad and U.S.-Japan-Korea cooperation. Japan has also signaled a stepped-up defense budget, with planned spending of $58 billion in fiscal year 2026, a 3.8% increase.
Jefferies identified six sectors likely to benefit from the pact: Power & Utilities, AI Infrastructure, Mining & Metals, Defense & Aerospace, Manufacturing & Logistics, and Pharma & Biotech. Taken together, the firm frames the agreement as providing broad economic and strategic openings for investors, even as it judges institutional recognition of those opportunities to be incomplete.