Asia rallies as Japan shares surge to record peak post Takaichi's win

Japan's Nikkei surged 4.2 per cent to all-time highs, with investors expecting increased spending and tax cuts

Asian markets leapt higher on Monday as a resounding win for Japanese Prime Minister Sanae Takaichi whetted appetites for more reflationary policies, while there was widespread investor relief at Wall Street's last gasp rebound.

A rally in chip stocks and bargain hunting in beaten-down momentum plays including silver ‍had helped shore up sentiment, as did wagers of more rate cuts ​from the US Federal Reserve.

A rate cut by June is now seen as an odds-on bet, with a slew of economic data this week on jobs, inflation and spending expected to reinforce the case for stimulus.

Japan's Nikkei led the gains with a jump of 4.2 per cent to all-time highs as the government's decisive majority clears the way for more spending and tax cuts.

 

"Cutting the consumption tax on food is a positive for domestic consumption spending; increased military spending is a positive for defence stocks," said Jamie Halse, managing director at Senjin Capital in Sydney.

"The real question is what other measures may be possible now with the huge mandate granted by gaining a two-thirds majority," he added. "The voters ​have clearly endorsed Sanaenomics, so it is possible further measures may be announced."

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.0 per cent, while South Korea's tech-heavy index climbed 3.9 per cent.

S&P 500 futures rose 0.4 per cent and Nasdaq futures added 0.6 per cent, having both bounced more than 2 per cent on Friday to break a run of heavy losses.

Chip stocks saved the day with Nvidia jumping almost 8 per cent, while Advanced Micro Devices surged over 8 per cent and Broadcom rose 7 per cent.

Yet concerns remained about whether the truly massive amounts being spent on AI will ever make a return, and which companies will ultimately benefit or fail. The four largest US tech giants alone plan to spend $650 billion on capex this year.

"Investors are sensibly rotating from AI spenders to beneficiaries, services to manufacturing, US exceptionalism to global rebalancing," wrote analysts at BofA in a note. "We are long Main St, short Wall St."

US DATA TO TEST FED WAGERS

To keep the rally going, US data this week would need to be benign enough to keep rate cuts alive, but not so weak as to threaten consumer demand and earnings.

Payrolls are forecast to rise 70,000 in January, to leave the unemployment rate at 4.4 per cent, though payroll growth over 2025 is also expected to be revised down quite sharply.

Retail sales are seen up a moderate 0.4 per cent, while headline and core consumer price inflation is forecast to slow a little to 2.5 per cent in January.

Any downside misses would ??tend to pull Treasury yields and the dollar lower, though the yen and pound have plenty of troubles of their own.

Investors have already sold the yen and JGBs in anticipation of Takaichi's debt-funded expansionary policies, leaving the dollar ‌steady at 157.22, and some way from the recent peak at 159.45. Analysts ​assume a push toward 160.00 would likely draw threats of intervention from Tokyo.

The euro was flat at $1.1810, having held to a tight range for the past week or so, while sterling was stuck at $1.3597 still plagued by political uncertainty amid speculation UK Prime Minister Keir Starmer could lose his job.

Starmer's chief of staff, Morgan McSweeney, quit on Sunday, saying he took responsibility for advising Starmer to name Peter Mandelson as ambassador to the US despite his known links to Jeffrey Epstein.

"Should Starmer be replaced, gilt yields initially rise and ‍the pound weakens," said Ruth Gregory, deputy chief UK economist at Capital Economics.

"The most likely longer-lasting influence is a loosening in fiscal policy that leads to higher gilt yields than otherwise and a weaker pound than otherwise."

In commodity markets, silver added 2.4 per cent to $79.82, after swinging wildly from a 15 per cent loss to a 9 per cent ‍closing gain on ‌Friday. The metal ​had plunged in the last two weeks as leveraged positions were caught in a vicious squeeze triggering margin calls and forced ‍selling.  Gold was also up 1.5 per cent at $5,033 an ounce, having been as low as $4,403 at one stage last week.

Oil prices continued to gyrate as markets waited on the outcome ‍of ‍talks between the US and Iran, which ‌have so far failed to reduce the risk of a military conflict between the two countries. [O/R]

Brent edged down 0.8 per cent to $67.52 a barrel, while US crude fell 0.7 per cent to $63.09 per barrel.