Asian markets edged higher on Monday as Sanae Takaichi’s Liberal Democratic Party (LDP) convincingly won the elections in Japan, providing greater clarity to investors worldwide.
The Japanese stock index, Nikkei 225, rose around 4%. Hong Kong’s Hang Seng jumped 1.76%, Korea’s Kospi rose 4.10%, while China’s SSE Composite Index saw a 1.41% gain.
In Europe, markets were mixed, with the STOXX Europe 600 trading less than 0.1% higher by around midday CET. France’s CAC 40 and the UK’s FTSE 100 fell, while Germany’s DAX was 0.18% higher and Spain’s IBEX 35 saw a 0.44% lift.
All eyes are now on the New York session open, with US futures trending downwards.
As for precious metals, gold is also up around 0.72% — back above $5,000 — while silver is more than 2% higher, at just under $80 per ounce.
The yen strengthened on Monday after Takaichi’s election victory, reversing six consecutive days of losses.
The PM assured the “continuation of responsible and proactive fiscal policies” after the election, although it’s unclear whether she is pursuing a weaker yen policy, highlighting that there are both advantages and disadvantages to a slide in the currency’s value.
Japan’s perceived stability
The first female Prime Minister of Japan, Sanae Takaichi, has regained a substantial amount of support for the LDP, which it had lost in recent elections due to inflation and corruption.
Following her electoral victory, Takaichi announced plans to accelerate the implementation of her campaign pledge to suspend the sales tax on food for two years.
The consequent loss of government revenue from this initiative, paired with high debt, is partially what caused a rout in Japanese bonds last month.
Nevertheless, Japan’s Finance Minister Satsuki Katayama talked down concerns over the country’s debt and the recent currency weakness, which many investors believe could prompt a rise in interest rates.
Katayama suggested utilising foreign exchange reserves to fund national expenditures. Although possible, this approach can be challenging as those reserves are usually only used for currency interventions.
The Japanese Finance Minister also underlined the ongoing collaboration and strong communication between the government and the Bank of Japan.
This assurance, together with the political stability provided by the robust mandate given to Prime Minister Takaichi, seems to have mitigated the markets’ distress — at least for the time being.
US economic reports
This week, investors worldwide are also bracing for major economic data releases in the United States, including reports delayed by the recent partial government shutdown.
The focus will be on the January jobs report on Wednesday and the January consumer price index (CPI) which comes out on Friday.
The delayed payrolls report is expected to show modest gains of roughly 60,000 jobs while the CPI is estimated to show inflation cooling to 2.5%.
Together with the release of these reports, multiple Federal Reserve governors, including Christopher Waller and Stephen Miran, are scheduled to speak throughout the week.
Investors are paying particular attention to the language used by members of the Fed to gauge the new policy line, following the announcement of Jerome Powell’s successor, Kevin Warsh, as the next Federal Reserve Chair.
Warsh is set to take over in May 2026, pending Senate confirmation.
President Donald Trump picked Kevin Warsh as a figure whose public and private track record is likely to reassure the financial markets. Warsh has advocated lower rates and a reduction in the central bank’s balance sheet.