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Key Points
- Nikkei 225 jumped 0.8% in early trade after a 3.5% decline last week.
- Fed cut odds surged to 85.1% from 42.4% a week ago.
- Nasdaq posted its biggest daily rise since May, up 2.69%, driving global tech optimism.
Japan’s Nikkei 225 rose 0.8% in early Tuesday trading, recovering some of last week’s sharp losses as investors rotated back into risk assets amid growing conviction that the Federal Reserve will lower interest rates at its December meeting.
The rally comes after a volatile period that saw the Nikkei drop 3.5% last week on valuation fears and geopolitical tensions.
Fed Rate Cut Bets Fuel Global Optimism
Markets are now pricing an 85% probability of a 25-basis-point cut in December, according to the CME FedWatch Tool.
The shift was driven by dovish remarks from Fed Governor Christopher Waller, who noted signs of labour market weakness, and San Francisco Fed President Mary Daly, who voiced support for easing next month.
The US 10-year Treasury yield held steady at 4.03%, while the 2-year yield hovered at 3.49%, reflecting stable rate expectations.
Meanwhile, the US dollar index (USDX) edged slightly lower to 100.2, supporting sentiment across Asian markets.
Tech Stocks Lead the Charge
The rebound was most pronounced in technology stocks, following a surge in the Nasdaq Composite, which climbed 2.69% on Monday — its best two-day gain since November 2024.
Heavyweights such as Advantest and SoftBank Group helped lift the Nikkei, mirroring Wall Street’s tech-led momentum.
The MSCI Asia-Pacific ex-Japan Index rose 1%, with Taiwan and South Korea also seeing strong gains as investors bet that easing monetary conditions will sustain the AI-driven rally that has dominated markets this year.
Cautious Eye on Global Politics
Despite the upbeat sentiment, investors remain wary of geopolitical risks.
Tensions between Tokyo and Beijing persist after Prime Minister Sanae Takaichi’s remarks about Japan’s potential military response to a Taiwan crisis.
However, signs of improved US-China relations, including President Donald Trump’s planned visit to Beijing in April, provided some relief.
Technical Analysis
The Nikkei 225 has rebounded from recent lows near 48,600, finding temporary support along its 50-day moving average.
The MACD indicator remains negative but shows early signs of flattening, a potential precursor to momentum stabilisation if follow-through buying continues.
Resistance sits near 49,500, while 47,800 serves as immediate support. A sustained close above 49,800 could restore bullish sentiment heading into December.
Outlook
With Fed expectations shifting decisively toward a rate cut and tech sentiment rebounding, Asian equities, particularly Japan, could see short-term upside.
However, continued caution over yen weakness, Japan’s fiscal policy, and US-China diplomacy may limit gains ahead of year-end.
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