- Japan doesn't impose any duties on its car imports, so "it isn't logical" for the U.S. to hit Japanese automakers with tariffs, said Nicholas Smith, CLSA's Japan strategist.
- U.S. President Donald Trump hinted in a recent conversation with the Wall Street Journal that a trade fight with Japan could be next.
U.S. President Donald Trump hinted in a recent conversation with the Wall Street Journal that a trade fight with Japan could be his next tariffs battle. Many experts have said Japanese auto sector is the most at risk of being targeted because it has accounted for three-quarters of the trade imbalance between Japan and the U.S.
Investors have largely avoided Japanese stocks in part due to such threats on the trade front. The country's auto sector has suffered: Shares in the country's largest automaker, Toyota, have declined by 8.55 percent this year.
"My answer on that is it isn't logical that (Japan is) hurt by Trump tariffs. It's got a $69 billion trade surplus with the U.S., yes it does, but almost all of that is in two areas: autos and machinery," Nicholas Smith, CLSA's Japan strategist, told CNBC's Akiko Fujita.
Smith's comments echoed the sentiments of other experts such as Seijiro Takeshita, professor at the University of Shizuoka, who told CNBC last month that U.S. tariffs on Japanese auto "does not make any rational sense."
Even so, the Trump administration can be unpredictable and that makes it difficult to forecast developments on trade, Smith said.
Tariff threats aside, Japanese companies have done "very, very well" with quarterly profits beating forecasts, Smith noted. The world's third-largest national economy also posted a 3 percent year-over-year growth in the second quarter of 2018 — the fastest pace since the start of 2016.
Smith said investors are "coming around to the idea that this is not a bad year at all." But, he acknowledged that many are still nervous about a potential recession in the U.S. hitting Japan and global trade conflicts taking a turn for the worse.
— CNBC's Dan Murphy and Reuters contributed to this report.