The Nikkei225 Soars as Takaichi’s Policies and Trade Truce Boost Investor Optimism.
Trading Leveraged products is Risky
On Monday, the Nikkei225 rose above 50,000 for the first time in its history driven by investor optimism. The Nikkei225 is the best-performing index of 2025 so far, having risen 28.65%. The Nikkei225 is currently trading with gains 9% higher than the DAX, the second best-performing index of 2025. However, the Japanese Yen is showing the opposite trend, so what is driving these key market movements?
Japan and Prime Minister Sanae Takaichi
Sanae Takaichi officially became Prime Minister on 21 October. Mrs Takaichi is a firm believer in expansionary fiscal policy despite being a conservative. A key issue for Japan is its gross domestic product (GDP) growth rate which is only 0.1%. The growth rate has been on a downward trajectory since the 1970s and continues to pose a challenge for Japan. However, many investors believe Takaichi has the boldness needed to reverse these trends.
She plans to roll out targeted fiscal stimulus, supporting key industries such as artificial intelligence (AI) and semiconductors, removing the provisional gasoline tax, and offering winter utility subsidies. In addition to this, the new Prime Minister is looking to strengthen ties with China and regional economies, as well as expand Japan’s Self-Defence Forces for the first time since the Second World War.
Many economists believe these measures are likely to stimulate economic growth and boost Japanese companies. These moves are also likely to weaken the negative impact of the Bank of Japan’s interest rate increases. For this reason, demand for the Nikkei225 is significantly increasing and is on track to record its strongest year-on-year performance since 2013.
NIKKEI225: 20-Year Performance (YoY)
Inflation, Trade And Investor Sentiment
The US and China have agreed to pause plans to impose 100% tariffs on Chinese goods. At the same time, China will delay implementing stricter export controls on rare earths bound for the US. Another element of the agreement is that China will resume purchases of US soybeans and other agricultural products. Previously, this trade had almost come to a standstill.
The trade agreements made between President Trump and Xi had a positive impact not only on the Nikkei225 but also across the global equity markets. All indices are trading higher, while the VIX has fallen by 4%. The decline in the VIX highlights the market’s renewed “risk-on” sentiment.
Lastly, global Purchasing Managers’ Index (PMI) readings released on Friday, alongside lower US inflation data, supported global demand. Germany, the UK and the US all saw their PMI figures rise above expectations. In addition to this, the US Consumer Price Index (CPI) rose from 2.9% to 3.00% (the forecast has been for 3.1%). As inflation came in lower than expected, investors now anticipate more frequent rate cuts by the Federal Reserve.
Bank of Japan and The Japanese Yen
The Japanese Yen remains the worst-performing currency. This is primarily due to expectations that the Bank of Japan will not raise interest rates as much as previously anticipated. In addition to this, Japan’s expansionary fiscal policy is fuelling concerns over the country’s high debt-to-GDP ratio. However, the weaker Japanese Yen is making the Nikkei225 more attractive to foreign investors.
Current expectations are that the Bank of Japan will keep interest rates unchanged on Thursday. A pause would likely support the Nikkei225, but traders will continue to monitor price action for signals of potential trends ahead.
Nikkei225 Daily Chart
Key Takeaways:
* The Nikkei225 hit 50,000 for the first time, making it 2025’s best-performing global index.
* Prime Minister Sanae Takaichi’s pro-growth fiscal policies have boosted investor confidence and market optimism.
* The US–China trade truce lifted global markets, supporting bullish trends and strengthening risk appetite.
* A weaker yen continues to support Japanese stocks but raises concerns over Japan’s rising debt levels.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.
Please note that times displayed based on local time zone and are from time of writing this report.
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Michalis Efthymiou
HFMarkets
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