Japanese stocks bounced back following a conversation between Prime Minister Shigeru Ishiba and US President Donald Trump that raised hopes of a tariff agreement. This development eased concerns about the economic consequences of Trump's recent tariffs.

The broader Topix index surged by up to 6.3% to 2,431.85 in early trading in Tokyo, while the Nikkei 225 Stock Average also saw significant gains, rising by as much as 6.1% to 33,037.38. Both indexes experienced their largest intraday increases since August.

The rise in the Topix was mainly driven by exporters such as electronics manufacturers, supported by a weaker yen against the dollar as market sentiment improved. The Japanese yen depreciated by up to 0.2% to 148.12 per dollar on Tuesday.

Banks also performed well, with the banking subindex of the Topix rising by over 10% after declining by more than 23% in the previous three sessions.

Although the Topix had dropped by more than 8% since Trump's announcement of a 24% tariff on Japan on April 2, and the Nikkei had entered bear market territory, Tuesday's recovery was fueled by a new sense of optimism as bilateral trade discussions were on the horizon. Andrew Jackson, head of Japan equity strategy at Ortus Advisors, highlighted this positive outlook following the call between Ishiba and Trump.

Furthermore, US Treasury Secretary Scott Bessent indicated that Japan could be prioritized in tariff negotiations due to its significant role as a military and economic partner. Jackson pointed out that the US-Japan relationship is less contentious compared to the US-China relationship, making it potentially easier for Japan to increase imports of US military equipment.