Asian Markets Rise, Nikkei Hits Record on Weak Yen; US Inflation Cools
Overview
Asian equities posted modest gains, with Japan's Nikkei 225 scaling record highs driven by a weaker yen amid speculation of a snap election. In the US, cooler-than-expected inflation data reinforced expectations of delayed Federal Reserve interest rate cuts. Investors are monitoring upcoming US bank earnings and a potential Supreme Court ruling on global tariffs.
Asian Markets Extend Gains
Asian equities traded higher on Wednesday, continuing a positive start to the year. Japan's Nikkei 225 Stock Average led the charge, climbing 0.9% to extend its record-breaking rally. The yen weakened significantly, trading past 159 per dollar, its lowest level since July 2024. This currency depreciation is seen as a key catalyst for Japanese stock gains.
Election Speculation Fuels Rally
Reports of a potential snap election in Japan are fueling investor sentiment. Prime Minister Sanae Takaichi's government is reportedly planning an early vote, which analysts suggest could lead to a mandate for continued stimulus policies. This political uncertainty has driven down bonds and pushed the yen deeper into territory where currency intervention might be considered. Japanese five-year yields rose to 1.615%, their highest since 2000.
US Inflation and Fed Watch
Meanwhile, US markets reacted to the latest inflation figures. Tuesday's US session saw the S&P 500 fall from an all-time high, partly due to weaker-than-expected investment-banking fees from JPMorgan Chase & Co. The December consumer price index (CPI) reading showed core inflation, excluding food and energy, rose 0.2% from November and 2.6% annually, matching a four-year low. This cooler inflation data solidifies expectations that the Federal Reserve will hold off on interest rate cuts until mid-year, with some traders even pushing back expectations to mid-2026.
Earnings and Tariff Watch
Investors are also bracing for a wave of earnings reports from major US banks, including Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc., and Morgan Stanley, scheduled for Wednesday and Thursday. These institutions are expected to post strong annual profits, boosted by policy changes implemented under the Trump administration. Additionally, attention remains on a potential US Supreme Court ruling regarding President Donald Trump's global tariffs announced in April, though the administration has alternative legal routes for most levies.
