Asian markets rallied sharply on Monday, driven by a decisive election victory for Japanese Prime Minister Sanae Takaichi that raised expectations of aggressive reflationary policies, alongside relief over a last-minute rebound in U.S. semiconductor stocks. Investor sentiment was further buoyed by renewed bets on U.S. Federal Reserve rate cuts and bargain hunting in oversold momentum assets, including precious metals.
Japan led regional gains, with the Nikkei jumping 4.4% to fresh all-time highs after the ruling government secured a strong majority. Markets interpreted the outcome as clearing the political path for expanded fiscal spending, tax cuts, and strategic investment. Investors rotated heavily into equities on expectations that Japan’s long-standing deflationary mindset is giving way to a more assertive growth agenda.
Analysts highlighted that political stability has transformed Japan from a contrarian bet into a reform-driven market. Expectations of increased spending on artificial intelligence, semiconductors, energy security, and structural reforms have improved confidence in corporate earnings and capital returns. However, the prospect of debt-funded expansion pushed Japan’s two-year government bond yields to 1.3%, their highest level since 1996.
The rally spread across the region, with MSCI’s Asia-Pacific index excluding Japan rising 2.2%. South Korea’s tech-heavy benchmark surged 4.3%, reflecting strength in global semiconductor demand, while Chinese blue chips gained 1.3% ahead of inflation data expected to confirm continued producer-price deflation and easing food costs.
European markets opened firmer, with major equity futures in the euro zone, Germany, and the UK all pointing higher. U.S. equity futures also edged up after Wall Street staged a sharp rebound on Friday, snapping a prolonged losing streak. The recovery was led by semiconductor giants, with Nvidia, AMD, and Broadcom all posting gains of around 7% to 8%, easing fears of a deeper technology-led correction.
Despite the relief rally, concerns linger about whether massive investment in artificial intelligence will ultimately deliver adequate returns. The four largest U.S. technology companies alone are expected to spend roughly $650 billion on capital expenditures this year, intensifying debate over who will benefit from the AI boom and who may be left behind.
Attention now turns to U.S. economic data due this week, which will test market expectations for Federal Reserve rate cuts. Investors are pricing in a high probability of a cut by June, contingent on employment, inflation, and consumer spending data remaining soft enough to justify stimulus without signaling a sharp economic slowdown. January payroll growth is forecast at 70,000, with unemployment edging up to 4.4%, while retail sales and inflation are expected to show modest cooling.
Currency markets reflected shifting expectations and political uncertainty. The dollar eased against the yen as traders took profits following heavy selling of the Japanese currency on expectations of expansionary fiscal policy. Analysts warned that any move toward 160 yen per dollar could prompt intervention threats from Tokyo. The euro held steady, while sterling remained under pressure amid speculation over the future of UK Prime Minister Keir Starmer following political turmoil within his administration.
Commodities were volatile, with silver surging nearly 4% after extreme price swings linked to forced liquidation of leveraged positions. Gold climbed toward $5,000 an ounce, recovering from sharp losses last week. Oil prices edged lower as markets awaited the outcome of stalled U.S.-Iran talks, which continue to carry the risk of escalating military tensions.
Together, the moves underscored a fragile but broad-based revival in global risk appetite, anchored in political shifts, policy expectations, and the enduring influence of the technology sector on world markets.
