After more than three months of formal negotiations and many more months of speculation about the Trump administration’s trade and economic policy toward Japan, Washington and Tokyo have agreed to a trade deal.

Carmakers led the rally in Japan, where the Nikkei Stock Average surged 3.5% to its highest level in a year.

The U.S. dollar strengthened against the Swiss franc and euro but weakened versus the yen on Wednesday as positive sentiment from a new U.S. trade deal was offset by political uncertainty surrounding Japanese Prime Minister Shigeru Ishiba's future.

Japan is facing trade and political uncertainty after a historic defeat for the prime minister’s ruling party. Shigeru Ishiba is trying to buy time for his premiership following this past weekend’s election, which left the ruling bloc three seats short of a majority in the upper house.

News of a US-Japan trade deal, though details remain vague, sent equities higher, with the Nikkei rising 3.5% during the morning session. However, the USD/JPY and Japanese government bonds declined amid fiscal concerns and reports of Prime Minister Shigeru Ishiba stepping down soon

US stocks opened slightly higher on Friday, extending a week of record-setting gains, as investors drew confidence from strong corporate earnings while keeping a cautious eye on trade developments and the upcoming Fed policy meeting.

Bank of Japan Deputy Governor Shinichi Uchida said Wednesday that a tariff deal between Japan and the United States is a

While the announcement was cause for optimism ahead of Aug. 1, analysts remained concerned about the steep tariffs still looming for key trading partners such as Brazil and the EU.

Businesses making everything from chips to steel reported downbeat results on Wednesday, with U.S. President Donald Trump's trade war inflicting damage even as Japan's deal lifted stocks and hopes that Europe can clinch a similar agreement.