Japan stocks rally as snap-election bets lift ‘Takaichi trade’

Japan’s stock market opened with a bang Tuesday after a three-day slump, as the Nikkei 225 surged by up to 3.6% to hit 53,549.16, its highest level in history.

Traders piled in fast after reports said the Liberal Democratic Party (LDP) is preparing to dissolve the Lower House later this month and call a snap election in February. NHK broke that news, and markets took off.

The rally brought back the so-called “Takaichi trade,” named after Takaichi Sanae, whose economic push for big stimulus and slower rate hikes has become a favorite for bullish investors. The Topix Index also jumped 2.13%. Chip stocks exploded. Advantest was up 8.99%, and Tokyo Electron climbed 8.31%. Even SoftBank gained nearly 5%.

Yields jump and yen hits 158 as pressure grows on Tokyo

Bond traders didn’t sit this one out. Japan’s 10-year bond yield rose to 2.15%, up more than 5 basis points, while the 20-year yield climbed 8 points to 3.137%.

This all tracks with fears that Takaichi’s $135 billion stimulus plan would flood the bond market with more government debt.

The yen has crashed to 158.25 per dollar, which is the weakest it’s been in almost a year and also dangerously close to the ¥160 zone that triggered four interventions in 2024. Food and energy prices are already rising, and many in Japan blame the falling yen. The Bank of Japan’s rate hike in December to 0.75% hasn’t helped.

Economists still expect more hikes this year, but traders don’t seem convinced it’ll stop the currency from sliding.

Finance minister Satsuki Katayama flew to Washington and met with U.S. Treasury Secretary Scott Bessent on Monday. After the meeting, Katayama said they discussed the situation directly: “I expressed my concerns about the one-way weakening of the yen.

Secretary Bessent shares those concerns.” She reminded reporters that she still had a “free hand” to step into the currency market if needed.

Not everyone is convinced the snap election will happen. Some traders think Takaichi might hold back if the LDP’s support stays low. But the market clearly doesn’t care right now. It’s trading like the election is already locked in.

Asian stocks follow Japan rally while oil and U.S. futures drift

Other Asian markets tried to catch the wave, and the South Korea’s Kospi added 0.62%, while the Kosdaq dropped 0.30%.

Hong Kong’s Hang Seng Index jumped by 0.73% to 26,803.00, and Australia’s ASX 200 climbed 0.56% to 8,808.50, but the Shanghai Composite didn’t join the party, falling 0.64% to 4,138.759.

In commodities, the Brent crude gained 1.52%, reaching $64.30 a barrel, while West Texas Intermediate rose 0.44% to $59.76 as of 7:34 a.m. in Singapore.

Back in the U.S. , futures were in the red. Dow futures slipped 65 points. S&P 500 futures fell 0.2%, and Nasdaq 100 futures dropped 0.3%. Investors there are waiting for consumer inflation numbers and bank earnings, but all eyes are still on Japan for now.

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