Japan soars after LDP landslide

Japan surges, gold and silver stabilise, bitcoin tumbles again and the Magnificent Seven stall. The financial markets are nothing if not interesting this week.

Takaichi’s election gamble pays off

The big story of the week, though, is a remarkable landslide victory for Japan’s first ever female prime minister, Sanae Takaichi, and the ruling LDP party she heads.

Japanese shares soared on the back of a new mandate for Takaichi’s bold economic stimulus, corporate investment and tax cutting programme. The Nikkei 225 index broke through 57,000 for the first time this week, up 5.7%, before easing back a little to close 4% higher on the day.

Takaichi was hopeful of a big win. But the scale of the landslide on Sunday surpassed everyone’s expectations. It leaves Japan as a beacon of political stability, in dramatic contrast to many other developed countries, including the UK.

The Nikkei has now risen by more than 30% in the past six months alone, three times as much as the S&P 500, one of the most dramatic examples of the rotation out of US assets over the past year.

Industrial stocks were big winners, on hopes that strategic spending plans will boost key sectors like AI and semiconductors. Defence stocks, too, are seen as a major beneficiary of Takaichi’s plan to revisit Japan’s pacifist constitution, in place since 1947.

The Takaichi trade is expected to spill over into currency and bond markets, too. The yen is under pressure as investors worry about how the government will fund its expansionary programme. Bond yields, too, are rising, notably those on long maturity issues that are most exposed to policy and inflation concerns.

Investors are watching developments closely, not just for the impact on Japanese assets, but potentially on other markets too. Rising yields on Japanese government bonds make Treasuries less relatively attractive and could trigger a repatriation of assets from the US to Japan. Higher Treasury yields, in turn, could have a negative impact on US shares, especially growth stocks whose present day valued is reduced as bond yields rise.

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Nasdaq looks into the abyss…and steps back again

US shares were already under pressure last week as fears about sky-high AI infrastructure spending capped a dismal six months for the Magnificent Seven tech stocks. They have gone sideways, even as markets more broadly in the US, and even more so globally, have continued to make progress.

The good news is that a slowdown in tech stocks has not dragged the overall market lower. It has been a bullish broadening for stock markets, and with plenty of catch up in Europe and Asia, that trend could continue.

The US market fell for most of last week but bounced back on Friday, with the S&P 500 up 2% on the last day of the week.

One of the key long-term drivers of share prices is corporate earnings, and half-way through the fourth quarter results season, the latest earnings round is looking encouraging. With nearly 300 of the S&P index’s 500 constituents having reported on the last three months of 2025, 80% of companies are beating expectations by an average of just over 8%.

Forecasts for earnings growth this year and next are in the mid-teens. If achieved that would go a long way to justifying current stock market valuations. At about 22 the next year’s earnings, these are high but not excessive and last year’s talk of a stock market bubble now look wide of the mark.

While everyone was focused on tech stock volatility last week, the Dow Jones index quietly crept past 50,000, five times the level it stood at in the aftermath of the financial crisis in 2008, and 30 times where it stood 40 years ago.

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Gold and silver regain some lustre

Meanwhile, last year’s other big speculative play - precious metals - stabilised after recent heavy falls. Silver, which peaked at $120 an ounce and fell below $70 last week, is back above $80. Gold, down from $5,500 to $4,700 is now back above the $5,000 level.

Not such good news for bitcoin, which remains under pressure and looks increasingly more like a leveraged risk trade than a safe haven debasement hedge. The price of the main crypto currency fell below $65,000 last week, roughly half the level it reached in October last year.

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