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Three days before Donald Trump was due to dine with 100 of Japan’s corporate elite, some of the real business had begun at a luxury hotel near the US ambassador’s residence.
From a private conference room at the Okura in central Tokyo, US commerce secretary Howard Lutnick was orchestrating what would become a cascade of investment commitments worth hundreds of billions of dollars.
The pledges made that day triggered a frenzy of investment decisions, the likes of which Japan has never experienced.
It had to be done at speed and on an unprecedented scale. As megadeals began to crystallise, they have had to avoid becoming entangled in the shortest snap election campaign in Japan’s postwar history.
At least three deals, making plausible inroads into Japan’s overall commitment of $550bn, are now due to be unveiled once the election on February 8 is over, according to several people familiar with the matter.
Their main purpose is to keep an implacable White House from slapping punitive tariffs back on its closest ally in Asia.
Many of those involved in the dealmaking in late October would later conclude they were also part of something bigger: the opening act in a fundamental recasting of the US-Japan alliance that has underpinned American power in Asia for nearly eight decades.
Lutnick presided over a rolling series of meetings with executives from the country’s biggest companies, including a key ally in Japan, Softbank founder Masayoshi Son. A US official said the administration was soliciting interest from Japanese companies in exploring the trade deal.
The purpose was to add plausible numbers to a trade deal struck in July that was one of the world’s most unusual and potentially one-sided.
By casting the investments as expressions of “interest” in projects, some of the Japanese CEOs were able to avoid going back to their boards to sign off the deals. More importantly, Japan was able to explain how it could make good on the $550bn of investments it had pledged to the US by 2029 — the end of Trump’s term — in exchange for a reduction in tariffs from 25 to 15 per cent.
All investments would be ultimately subject to the approval of one man: Trump.
The episode was an exemplar of Trump’s preferred mode of statecraft: dealmaking as spectacle, with public commitments to fantastical 12-figure numbers. One Japanese chief executive described the event as “a shakedown”. One diplomat described it as “street-level tactics”.
A US official denied accusations of arm twisting, saying the signatures were exploratory documents for companies interested in receiving Japanese funds from the trade deal.
The nature of the pledges made by Japan and its neighbour South Korea in order to lower the tariff burden has become a test of Trump’s tolerance for delay. Trump’s model asks allies to prove their loyalty to the deal by stumping up capital but only gives them months to find the money.
Once Trump had arrived at the dinner in October, Lutnick was ready to present the fruits of his labour. Smiling CEOs from companies including Panasonic, Hitachi and SoftBank Group walked up one by one to be presented by Lutnick with their already signed documents to hold and pose next to the US president.
“Japanese CEOs are used to taking months to make deals rather than doing it in hours in a hotel room,” said one person familiar with the conversations. “But this was a necessary expedient for both sides.”
Not all the chief executives had agreed on a figure. Some were fuming at the long delay between being asked to arrive at the embassy and the main event.
A few suspected they had been pushed back in the queue behind CEOs who had made multibillion-dollar pledges. More still were confused by what exactly they had signed. Nevertheless, the event was hailed a success — and filmed for the world to see.
“It was a total pantomime. I’ve never seen anything like it,” said another person at the dinner.
Even so, Japan realised quickly that it might be called on its pledges sooner rather than later. “Some people thought that perhaps we could just wait and Trump would switch attention to something else. But that is too dangerous. We have to show that we are honouring the deal,” said one senior Japanese official involved in negotiations.
Since the dinner, Japan and the US have held at least three high-level meetings to discuss large investment projects.
The basis for the negotiations is a memorandum of understanding agreed by Washington and Tokyo last July. But across Japanese ministries, banks tasked with delivering the funds and companies making investments as well as US and foreign diplomats, confusion over how it applies in practice has been rife.
Officials on both sides have been working out in real time how and when funds will flow from Japan — via credit from the Japan Bank for International Cooperation (JBIC) or loan guarantees for private funding sources from Nippon Export and Investment Insurance — into special purpose vehicles (SPVs) and from there into projects carried out by companies.
How the US-Japan investment deal works
Proposed projects are screened for “strategic and legal considerations” by a committee of US and Japanese members, according to a joint MOU and a document prepared by Japanese officials.
Projects are then sent to an investment committee headed by US commerce secretary Howard Lutnick, who chooses which proposals to send to the US president for approval.
Donald Trump has the final say on which projects are “deemed to advance economic and national security interests”. Japan and its state-backed bank can delay or refuse to proceed but face potential penalties, including higher tariffs.
Funds for approved projects — from JBIC or with guarantees from Japan’s insurance corporation — then flow into an SPV alongside “the provision of land, water, power, energy, offtake agreements, regulatory support, etc” from the US.
Free cash generated by projects will be split equally until the Japanese loans are paid back, according to officials. After that, the US will receive 90 per cent.
Officials believe Japanese companies outside the project can also make agreements with it separately, with terms negotiated that are different from the US-Japan split of cash flow.
The first meeting of the consultation committee took place in mid-December, according to multiple people familiar with the matter, with the American side including David Shapiro, chief counsel at the US Department of Commerce.
Subsequent meetings were more high powered. While most of Tokyo was still on holiday, Lutnick and Japan’s chief trade negotiator Ryosei Akazawa took their seats.
A third meeting took place late in January, said the same people, adding that there are now at least three deals on the table, including a big energy project.
“The first deal does not have to be enormous, just large enough to show that progress is being made quickly,” said one of the officials in Tokyo.
Japan is keenly aware that it is in a precarious position. It relies on the US as an important defence ally as well as its largest export market, leaving it highly exposed to the threat of tariffs, particularly for its huge auto industry.
The deal has forestalled the worst and could be seen as a proxy price for US defence guarantees. But the cost — pledging a massive amount of capital for Trump to deploy in critical American industries, from energy to semiconductors — could eventually prove to be disproportionately high.
JBIC, the state-backed bank tasked with the majority of the direct funding, has access to Japan’s foreign exchange reserves and can issue its own bonds. But it will still have to ask parliament for large amounts of cash if the full $550bn is to be met.
The way the agreement with the US is structured also means that if Japan delays or refuses to fund a project recommended by Trump, it could be liable for “catch-up” payments or an increase in tariff rates.
The clause has put severe pressure on JBIC to greenlight proposals and has set the Japanese side racing to find projects to propose to the consultation committee that appear certain to be profitable. Japanese companies already keen to invest in the US are circling.
“The US is such a big market . . . it’s not a crazy number, $550bn from the macro standpoint,” said one of Japan’s leading executives, pointing to the need for energy-centric groups to relocate. “Nippon Steel has already moved forward, shifting plants from Japan to the US and India.”
William Chou, a director at the Hudson Institute familiar with the talks, said the political dynamics and terms of the fund made it “highly compelling” for Japanese industry to take a “proactive” approach.
“The presence of senior Japanese ministry officials on the $550bn consultation committee gives Japan direct communication with US leadership for project proposals or issues that may arise,” he said.
But the dangers of getting this wrong are no longer abstract. In January, South Korea was told to expect a 25 per cent tariff because Trump claimed it had not fulfilled its end of the bargain.
And even as Japan fights to salvage — through Trump-style dealmaking — as much of the old relationship as it can, the dialogue has been co-operative but occasionally heated, people familiar with the talks say.
A US official said the Japanese have flexibility on how they fund the deals and that the meetings have all been friendly and collaborative.
In trying to balance the risks, Tokyo has seen an advantage in Lutnick acting as the main counterpart on the US side, said multiple Japanese officials. Japan recognised from the start that this deal had to be done quickly and couched in vague language to avoid parliamentary debate that would be lengthy and politically perilous.
“This is a trade agreement that was done without going through the usual channels of a trade agreement, and we decided as adults to ignore the need for a binding agreement. Other countries that go into negotiations, including the EU, looking for a binding agreement will take a lot longer,” said one of the officials.
Lutnick was also close to the other main player in the background of the deal: Son.
While Son has developed deep ties to Trump and Lutnick, it was seen as a blessing and a curse by diplomats grateful for access but fearful that they cannot control the SoftBank boss.
The shape of the $550bn plan was partially inspired by Son — who had months ago floated the idea to Lutnick of creating a joint US-Japan sovereign wealth fund — and helped organise large numbers of the pledges made for the dinner with Trump, according to people close to the situation.
If all goes to plan, say the people close to Son, the Japan-US fund will back a big SoftBank project as part of its first volley of investments. SoftBank declined to comment.
It will be a clear pay-off for Son’s extensive courting of Trump, but his grandiose ambitions could also give Japan and the US exactly what they both need, diplomatically and practically.
This is investment and decision-making at a pace and scale Japan has never experienced. It is uncomfortable in the extreme, but Japan has accepted there is no escape.
As one deal adviser in Tokyo said: “The clock is ticking.”
Design by Carolina Vargas
