A look at the day ahead in European and global markets. Japan's first female prime minister, Sanae Takaichi, achieved an emphatic election result that triggered a strong market reaction, with the Nikkei rising 4.5% to record territory. In a single session the index pushed past 55,000, 56,000 and 57,000 for the first time.
The political outcome was decisive. The Liberal Democratic Party captured 316 of the 465 seats in the lower house of parliament, its best showing on record. Together with its coalition partner, the Japan Innovation Party, the governing bloc now controls 352 seats, giving it a two-thirds supermajority. That majority removes legislative obstacles to measures such as increased defence spending, tax cuts, corporate reform and other policies that could be broadly reflationary - provided the new leadership implements the campaign pledges it put forward.
Equity markets responded positively to the prospect of a sustained policy direction, but fixed income markets priced in the funding cost of those measures. Two-year Japanese government bond yields rose to 1.3%, the highest level since 1996, on concern that additional spending could be financed by increased borrowing. Currency moves were shaped partly by positions built ahead of the result; the yen, which had been sold in anticipation of a market-friendly outcome, staged a modest rebound after the initial knee-jerk adjustments. The dollar fell roughly 0.3% to 156.80 yen, while the euro and Swiss franc eased from earlier record highs.
Looking beyond immediate market moves, investors noted that Japan may now have the prospect of a government and leadership that endures for more than a year or two, offering a degree of stability amid significant geopolitical shifts. By contrast, political turbulence in the United Kingdom underlined a different set of risks. Prime Minister Starmer said goodbye to his chief political adviser over the weekend as the Mandelson affair claimed another scalp. It remains unclear whether Starmer can retain control, or who might succeed him if the party were to remove him, leaving gilts exposed to episodic debt scares.
Elsewhere in markets, the earlier turmoil in leveraged momentum trades appears to have steadied for the moment. Silver advanced another 3%, while Bitcoin was described as steady, though still recovering from earlier volatility. Market attention is also fixed on a slate of delayed U.S. economic releases due this week: payrolls, retail sales and consumer price index numbers are all scheduled to be published. The convergence of these reports in one week may be unusual.
Consensus forecasts see nonfarm payrolls rising a modest 70,000, but statistical quirks related to seasonality and the birth-death model have led to a wide range of forecasts, from a drop of 10,000 to an increase of 135,000. Analysts are also anticipating significant downward revisions to the payroll levels reported last year. With markets pricing in a June rate cut from the Federal Reserve, any upside surprise in the data would likely have a pronounced effect on asset prices and interest rate expectations.
Key policy and market-facing events to watch on the day include remarks from European Central Bank President Christine Lagarde and board member Philip Lane, a speech by Bank of England policymaker Catherine Mann, and appearances by Federal Reserve officials including governors Christopher Waller and Stephen Miran, and Atlanta Fed President Raphael Bostic.
Market participants will be parsing these data points and central bank commentary for signals on policy direction, risk tolerance and the timing of potential rate moves. For now, Japan's decisive election outcome has provided a near-term boost to equities and prompted fresh debate about the fiscal and monetary trade-offs ahead.