Asia Markets Jump as Japan’s Nikkei Hits Record on Reflation Bets

Summary

Asian equities surged after Japan’s stock market soared to a fresh all-time high, driven by political clarity and expectations of aggressive reflation policies, while a late rebound on Wall Street and renewed hopes of US rate cuts further boosted risk appetite.

What’s Driving the Rally

Markets across Asia rallied after a decisive election win by Japanese Prime Minister Sanae Takaichi, which secured a strong parliamentary mandate and cleared the way for more fiscal spending and tax cuts.

• Japan’s Nikkei jumped 4.2% to a record high

• MSCI Asia-Pacific (ex-Japan) rose 1.0%

• South Korea’s tech-heavy index climbed 3.9%

Investors interpreted the result as an endorsement of reflationary “Sanaenomics”, including:

• Possible food consumption tax cuts → supportive for domestic demand

• Higher defence spending → positive for defence-related stocks

Wall Street Relief Rally Adds Momentum

Sentiment was also lifted by a sharp rebound in US equities late last week:

• S&P 500 futures +0.4%

• Nasdaq futures +0.6%

US chip stocks led the bounce:

• Nvidia +8%

• Advanced Micro Devices +8%

• Broadcom +7%

Fed Rate Cut Expectations Back in Play

Markets are increasingly pricing in a US Federal Reserve rate cut by June, supported by expectations of softer economic data ahead:

• Payroll growth expected to slow

• Inflation forecast to ease slightly to 2.5%

• Retail sales seen growing at a moderate pace

Key balance: Data must be weak enough to justify rate cuts, but not so weak as to threaten earnings.

Rotation Theme Emerging

Analysts note a broader shift in positioning:

• From AI spenders to AI beneficiaries

• From services to manufacturing

• From US-centric trades to global rebalancing

This comes amid lingering concerns over whether the US$650 billion in AI capex planned by the world’s largest tech firms will deliver sufficient returns.

Currencies & Commodities

• Yen weakened to around 157 per dollar as investors sold Japanese bonds in anticipation of debt-funded stimulus

• Silver rebounded 2.4% after extreme volatility last week

• Gold rose 1.5% to about US$5,033/oz

• Oil prices slipped as US–Iran talks failed to ease geopolitical risks

Bottom Line

Japan is once again the engine of Asia’s market rally.

A powerful political mandate, reflation hopes, easing global financial conditions, and renewed Fed cut expectations have combined to push Asian equities higher — with Japan firmly back in the global spotlight.

Key Takeaways

• Japan stocks hit record highs on reflation optimism

• Asia benefits from Wall Street rebound and Fed cut bets

• Rotation away from AI capex risk toward broader global exposure

• Volatility remains high in commodities and FX