The US-Japan partnership is becoming increasingly important in trade, investment and security, however, according to Jefferies, it remains undervalued by institutional investors.
Analyst Aniket Shah said in a note to clients this week that the $550 billion investment deal is a key catalyst, reducing mutual tariffs from 25% to 15% and expanding U.S. export access in manufacturing, aerospace, agriculture, energy, automotive, and industrial goods.
The agreement prioritizes energy, AI infrastructure, and the processing of critical minerals, with the first project expected by March.
Jefferies noted that the US "will be able to retain 90% of the project-level profits after cost recovery, and all funding should be distributed by 19.01.2029."
There is also expected to be an increase in defense cooperation as Japan purchases more US systems, including the deployment of Tomahawk missiles.
Japan is already playing a central role in US capital markets. As of the end of 2024, it held $819 billion in foreign direct investment in the United States, the largest amount among all countries, with a focus on manufacturing, electronics, and financial services.
By November 2025, Japan's holdings of U.S. Treasury bonds had increased to $1.2 trillion, surpassing the United Kingdom by $314 billion, while Japan remained one of the largest holders of U.S. stocks, agency bonds, and corporate bonds.
The U.S.-Japan alliance is strengthened by security ties: Japan hosts about 55,000 U.S. troops and participates in the Quadrilateral Dialogue and the U.S.-Japan-Korea trilateral cooperation. Japan plans to increase its defense spending to $58 billion in fiscal year 2026, a 3.8% increase.
Jefferies has identified six sectors that are likely to benefit from this pact: energy and utilities, AI infrastructure, mining and metals, defense and aerospace, manufacturing and logistics, and pharmaceuticals and biotechnology, highlighting the broad economic and strategic opportunities for investors.