Japan’s Topix index has reached its highest point ever, reflecting strong performance across nearly all Prime Market stocks. The Topix is regarded as a comprehensive indicator of Japan’s equity market, and Japanese equities have risen significantly in morning trading, with the Topix achieving a record high. The Nikkei 225 has increased by 1.4%.
Impact of Political Changes
Prime Minister Ishiba’s resignation has positively impacted the equity markets, and the yen’s depreciation has made Japanese equities more accessible for foreign buyers. Notably, the GBP/JPY and EUR/JPY currency pairs have reached 12-month highs. Recent data from Japan is promising, with Q2 GDP showing a 0.5% increase quarter-on-quarter, following a preliminary reading of 0.3%.
The TOPIX index, covering approximately 1,800 stocks from the TSE Prime Market, is market-cap weighted, offering a broad representation of domestic companies. Comparatively, the Nikkei 225, a price-weighted index, encompasses 225 selected companies and is more susceptible to volatility due to the influence of high-priced stocks. Overall, Japan’s financial landscape is currently experiencing developments driven by political changes and encouraging economic data.
Given the Topix has broken its all-time high from 1989, we should anticipate increased momentum in Japanese equities. The weak yen, a direct result of political certainty and accommodative policy expectations, acts as a powerful tailwind for the market. Derivative strategies should therefore lean bullish, positioning for further upside in major Japanese indices over the coming weeks.
The yen’s depreciation has pushed the USD/JPY pair past the 165 level, a multi-decade high, making it a key area for currency derivative traders. We should consider buying call options on pairs like USD/JPY and EUR/JPY to profit from continued yen weakness. The falling yen boosts profits for Japan’s large exporters, which in turn should continue to lift the overall stock market.
The Role of Foreign Investment
The positive political shift combined with strong Q2 GDP growth provides a solid fundamental backdrop for this rally. Recent Ministry of Finance data from August 2025 showed foreign investors were net buyers of Japanese stocks, pouring over ¥2.1 trillion into the market, a trend we expect to accelerate. Selling out-of-the-money put options on the Topix index could be a viable strategy to collect premium while betting on market stability or continued ascent.
When selecting an underlying index, we must recognize the difference between the Topix and the Nikkei 225. The broader Topix is a better reflection of the entire market and may be preferable for more stable, long-oriented positions. However, the more volatile, price-weighted Nikkei 225 could offer more lucrative opportunities for short-term options traders seeking to capitalize on bigger price swings.
We saw a similar pattern back in the early 2010s with Abenomics, where a weakening yen fueled a sustained bull run in stocks. The Bank of Japan has so far signaled that any moves toward policy normalization will be gradual, which should continue to support this environment. Therefore, long-dated call options on Japanese equity ETFs could also be a prudent way to maintain exposure to this trend.
