Asian stocks rose to a record high on Wednesday, buoyed by Japanese shares, as investors braced for a possible election in Japan that could lead to more stimulus, while worries about central bank independence and benign U.S. inflation datajolted currencies.
Rising geopolitical tensions helped propel silver above $90 per ounce for the first time with the metal surging 27% in the first nine trading days of the year. Gold prices also climbed to yet another record high after a stellar 2025.
Oil prices wobbled after rising as U.S. President Donald Trump urged Iranians to keep protesting, saying help is on the way. Iran in turn accused Trump of encouraging political destabilization and inciting violence.
The Japanese yen fell to its weakest level since July 2024 and was last at 159.29 per dollar as the threat of market intervention resurfaced, after local media reported that Prime Minister Sanae Takaichi was considering calling a snap lower house election on February 8.
The frail yen and the prospect of more stimulus sent the Nikkei over 1% to a record and pushed Japanese government bonds lower, a so-called “Takaichi trade” that appears to have been turbocharged this week as investors fret about the country’s fiscal health.
Fred Neumann, chief Asia economist at HSBC, said the election outcome could bring forward the next BOJ rate hike, although the central bank was likely to consider financial market volatility, including renewed yen weakness.
“Crucial for the BOJ will be the new government’s fiscal and reform plans, with easier fiscal policies and pro-growth reforms reducing downside risks to growth and inflation,” Neumann said.
“Still, accelerating yen weakness would pose challenges to the BOJ, possibly prompting more hawkish rhetoric.”
China stocks reversed course to trade 0.15% lower after Chinese stock exchanges tightened margin requirements in a surprise move to cool the red-hot equity market. Blue-chip stocks had hit a 10-year high on Tuesday.
Investors mostly looked past trade data where China reported a record trade surplus of nearly $1.2 trillion in 2025, led by booming exports to non-U.S. markets.
MSCI’s broadest index of Asia-Pacific shares was up 0.5%, hitting a fresh record high. U.S. stock futures were 0.19% lower while European stock futures were a marginal 0.1% higher, pointing to a subdued open.
COOLING INFLATION
Data on Tuesday showed moderate underlying U.S. inflation pressures last month.Economists said this suggested the pass-through of import tariffs to prices was slowing, keeping rate cuts on the table this year, although the broad expectation was for the Fed to hold steady this month.
Traders are pricing in at least two rate cuts this year, with a move not expected until after Jerome Powell ends his term as Fed chairman in May.
Matt Simpson, a senior market analyst at StoneX, said U.S. inflation was not slowing sufficiently to move the needle towards imminent rate cuts.
“With lack of enthusiasm for cuts from an economic perspective, the U.S. dollar might enjoy a bit more of a bid before the tide reverts to bearish hands,” Simpson said.
The dollar index, which tracks the greenback’s performance against a basket of currencies including the yen and the euro, was last flat at 99.184 after rising 0.2% in the previous session.
The dollar was knocked back at the start of the week as investors worried about Fed independence under Trump after the U.S. Department of Justice threatened to indict Powell in connection with a building renovation project.
That led to a sharp rebuke from Powell and former Fed chiefs. Global central bank officials later on Tuesday issued a coordinated statement of support for him.
Steve Lawrence, chief investment officer of Balfour Capital Group, said markets appeared to view this episode as largely political rather than a substantive institutional threat.
“Powell’s characterisation of any threat of indictment as intimidation reinforces that interpretation, signalling institutional defence rather than escalation,” Lawrence said. “From a market perspective, this suggests existing guardrails around the Fed are still seen as intact.”
In commodities, gold rose over 1% to $4,639.42 per ounce and silver surged nearly 5% to over $90 per ounce – hitting fresh record highs on Wednesday.
-Reuters
