Landslide Election Victory Fuels Expansionary Policies and Ignites Japanese Equity Markets

Market Overview

The Nikkei 225 index has reached a new all-time high of 57,960 points, marking a significant increase of approximately 15% since the beginning of the year. This performance has outpaced US, European, and Chinese equity markets, although it still trails behind South Korea’s KOSPI index, which has surged by about 26% year to date. Additionally, the TOPIX index has also achieved a record high of 3,864 points, reflecting a 13% increase since the start of the year.

Key Drivers of Market Rally

The recent rally in Japanese equities can be attributed to several pivotal factors:

• Political Stability: The Liberal Democratic Party, led by Prime Minister Sanae Takaichi, secured a landslide victory in the legislative elections on February 8. This outcome is notable in Japan's political landscape and provides Takaichi with the mandate to implement her proposed expansionary fiscal policies.
• Expansionary Fiscal Policies: The government plans to boost spending, ease borrowing conditions, and cut taxes, particularly on food items, to stimulate the sluggish economy.
• Foreign Investment: Japanese equity markets have seen strong foreign investment inflows for six consecutive weeks, totaling over ¥3.3 trillion, indicating robust buying momentum from international investors.
• Currency Weakness: The Japanese yen has weakened, trading at 157.66 per US dollar, its lowest since January 23, 2026. This depreciation encourages foreign investors to allocate more capital to Japanese assets.

Technical Analysis

From a technical standpoint, indicators suggest that the Nikkei 225 may continue its upward trend. Key observations include:

• The 20-day moving average is above the 50-day moving average, which in turn is above the 200-day moving average, indicating a strong bullish trend.
• The Relative Strength Index (RSI) is currently at 73, suggesting strong bullish momentum.
• The Moving Average Convergence Divergence (MACD) shows a bullish crossover, reinforcing the positive outlook for the Nikkei 225.