Nikkei 225 closed at 50,750.39, gaining 0.68%. The broader Topix rose to a record high. The Nikkei 225 rally is largely driven by the gains in the tech sector, less-than-expected inflation data, and the announcement of massive government budget spending. Nikkei 225 recorded a weekly gain of 2.5%. The technology sector added 52.79% to the day’s price change, followed by consumer goods.
The top gainers include Sapporo Holdings Ltd., Disco Corp, DeNA Co. Ltd., Ibiden Co. Ltd., and Nintendo Co. Ltd. Sapporo Holdings closed at 8,271, with 2.49% up. The Disco Corp. and DeNA Co. Ltd. closed the trading session at 48,870, 2.41% up, and 2,618, 2.39% up, respectively. SoftBank Corp is a major tech stock that registered gains.
Sumitomo Electric Industries Ltd, Mitsui Kinzoku Co. Ltd, Fujikura Ltd., and Furukawa Electric Co. Ltd. are major losers. The Sumitomo Electric Industries closed at 6,255.00, down by 4.36%. Mitsui Kinzoku Co. Ltd. and Fujikura Ltd. closed at 17,325.00, ending 3.00% lower, and closed at 17,160.00, 2.61% down, respectively.
Lower Than Expected CPI Data and Massive Budget Spending Announcement
The consumer price index (CPI) data released showed a 2.3% year-over-year increase, lower than expected. Besides, inflation is down from 2.8% in November. The easing of inflationary pressure supported the stock market rally.
The Japanese government approved a massive budget of 122.3 trillion yen ($782 billion) for the fiscal year from April 2026. The budget includes 9 trillion for defense, and the country is ramping up its spending in the sector. Japanese Prime Minister Sanae Takaichi commented on the fiscal policy in the past week, “What Japan needs right now is not the undermining of our strength as a nation through excessive austerity fiscal policies, but rather the bolstering of our national strength through proactive fiscal policies.”
The softer-than-expected CPI data and government spending added renewed momentum to the Nikkei 225. Moreover, the anticipation of reducing issuance of super-long bonds next year increased their demand but reduced the yield from a record high. The government bonds had earlier reached a 26-year record yield.
Yen is Weakening Against the Dollar
The yen continued to weaken today. At the time of writing, 1 USD is equivalent to 156.3520. A weakening yen is proving to be beneficial for Japan’s major export companies like SoftBank Group and Nintendo. A weakening yen makes their goods more competitive abroad.
One of the key reasons for the strengthening dollar compared to the yen is the change in monetary policies in the U.S. and Japan. While the Federal Reserve reduced the interest rates on December 10, the Bank of Japan (BOJ) announced an interest hike of 0.75% on December 18. The hike is a 30-year high, making the borrowing costlier and threatening the yen carry trade. Yet, the BOJ has yet to give a clear policy direction for future monetary policy, prompting many traders to sell yen.
As for other Asian markets, the SSE Composite Index closed at 3,963.68, gaining 0.10%, and the Hang Seng closed at 25,818.93, 0.17% higher.
