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Japanese equities surged to fresh all-time highs, extending a powerful rally as investors priced in the growing likelihood of a snap general election under Prime Minister Sanae Takaichi. Market optimism around pro-growth policies, loose monetary conditions, and a sharply weaker yen continues to underpin what traders are calling the ongoing “Takaichi trade.”

Speculation is mounting that Japan’s ruling Liberal Democratic Party, now led by Takaichi, could call an early election as soon as February. If confirmed, it would mark Takaichi’s first national electoral test since assuming office. Markets are reacting positively, betting that an early mandate would accelerate fiscal expansion and policy continuity at a time when global growth remains uneven.

Equities push into uncharted territory

The Nikkei 225 climbed another 1.61 percent, decisively breaking above the 54,000 level for the first time in its history. The benchmark had already gained more than 3 percent in the previous session, underscoring the pace of the rally. Since the start of the year, the index is now up well over 15 percent, outperforming most major global peers.

The broader Topix index also advanced, rising 0.87 percent and setting a new record high. Gains were led by exporters, industrials, and financial stocks, sectors that stand to benefit most from a weaker currency and expectations of fiscal stimulus. Trading volumes were notably elevated, suggesting strong institutional participation rather than a purely retail-driven move.

Yen weakness reinforces the rally

Currency markets added further fuel to the equity surge. The Japanese yen weakened past 159 per dollar, its lowest level since July 2024. That previous episode had triggered direct intervention from Japanese authorities, highlighting how closely policymakers are watching currency moves.

A softer yen boosts the overseas earnings of Japan’s export-heavy corporate sector, improving profit outlooks for automakers, technology firms, and industrial conglomerates. Analysts note that as long as the Bank of Japan maintains a relatively accommodative stance compared with the U.S. Federal Reserve, downward pressure on the yen is likely to persist.

Policy expectations drive investor confidence

Takaichi has consistently signaled support for loose monetary policy and has outlined plans for a large-scale economic stimulus package aimed at boosting domestic demand, wages, and capital investment. Market participants see this as a continuation and expansion of Japan’s long-standing reflationary playbook, with an added fiscal push.

Strategists at several regional investment banks have highlighted that Japanese equities remain attractively valued relative to U.S. peers, particularly when adjusted for earnings growth and shareholder returns. Ongoing corporate governance reforms, including higher dividends and share buybacks, are also strengthening Japan’s long-term investment case.

Mixed picture across Asia

Elsewhere in the region, markets were more subdued. South Korea’s Kospi edged up 0.14 percent, while the tech-heavy Kosdaq slipped 0.49 percent. In Hong Kong, the Hang Seng Index rose 0.83 percent, supported by gains in consumer non-cyclical and basic materials stocks. Mainland Chinese equities also advanced, with the CSI 300 climbing 1.11 percent amid selective buying in large-cap names.

Australia’s S and P ASX 200 finished flat, as gains in miners were offset by weakness in financial stocks.

Commodities shine as U.S. markets retreat

In commodities, spot silver surged 3.7 percent to break above the 90 dollar level for the first time, cementing its status as one of 2025’s strongest performers. Analysts attribute the move to a combination of industrial demand, supply constraints, and renewed investor interest in precious metals.

Overnight in the United States, equity markets moved lower as investors digested policy uncertainty tied to a series of recent proposals floated by President Donald Trump. The S and P 500 slipped 0.19 percent, dragged down in part by profit-taking in major financial stocks despite solid earnings results from JPMorgan. The Dow Jones Industrial Average fell 0.8 percent, while the Nasdaq Composite edged down 0.1 percent.

Outlook

With political developments, currency moves, and policy expectations converging, Japan remains one of the most closely watched equity markets globally. Investors will be monitoring any confirmation of an election timeline, signals from the Bank of Japan, and potential currency intervention, all of which could shape the next phase of the rally.