Japanese equities rallied strongly last week after Prime Minister Sanae Takaichi’s resounding snap‑election victory on February 8th lifted optimism around a more growth‑focused policy agenda. The scale of the win was striking, with the Liberal Democratic Party securing a decisive landslide built on expectations of aggressive fiscal spending and targeted tax cuts aimed at re‑energising domestic demand. There is also growing speculation that Japan may move toward amending its post‑war constitution, signalling a potential shift away from its long‑standing pacifist stance and paving the way for a sustained rise in defence spending. Local equities surged across the week, with the Nikkei 225 jumping nearly +5.0% in yen terms to reach fresh record highs. The yen also strengthened modestly, while Japanese government bond yields edged higher as investors priced in heavier borrowing to finance the new growth‑centric agenda.

Elsewhere, equity returns were mixed. AI‑related volatility in the US continued through the week, with the disruptive nature of the technology weighing on several sectors and reinforcing the recent divergence between growth and value. The Nasdaq, with its heavier concentration of large‑cap tech names, fell by -2.1% (in dollars), while the broader S&P 500 slipped -1.4%, extending the period in which value benchmarks have outperformed their growth counterparts. Lower expectations of a near‑term Federal Reserve (Fed) rate cut following stronger‑than‑expected labour‑market data likely added to the softer tone. In Europe, equity markets were largely range‑bound, with MSCI Europe ex‑UK up just +0.1% (in euros) as gains in Germany were offset by weakness in Italy. The FTSE 100 advanced +0.7% despite a challenging political backdrop for Prime Minister Keir Starmer as the Lord Mandelson scandal continued to attract headlines. Returning to Asia, China’s Shanghai Composite rose +0.4% (in renminbi) ahead of this week’s market closures for Lunar New Year, as trading volumes thinned into the holiday period.

Moving to the commodity markets, oil prices were broadly steady, with Brent Crude slipping -0.6% over the week to $67.88 a barrel. That marked a second consecutive weekly decline as concerns over a potential US–Iran escalation continued to weigh on sentiment. The International Energy Agency’s downgraded demand outlook for 2026 added further pressure, reinforcing the softer tone across energy markets. As for gold, its price edged higher, rising by +1.1% to $4,997 an ounce. The metal had been on track for a weekly decline before Friday’s softer US inflation print triggered a late rally, as investors reassessed the likelihood of a Fed rate cut at the next policy meeting.

SJP Approved: 16/02/2026

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