Asia stocks inch higher as fragile yen spurs worries

Asian stocks rose on Wednesday, boosted by Japanese equities, as investors braced for a snap election in Japan that could lead to more fiscal stimulus, while concerns about central bank independence and positive U.S. inflation data weighed on currencies.

Geopolitical tensions around the world sent gold to a record high and sent oil prices soaring as US President Donald Trump urged Iranians to continue protests, saying aid was on the way. Iran, on the other hand, accused Trump of encouraging political instability and inciting violence.

The Japanese yen hit its weakest level since July 2024 at 159.415 per dollar in early Asian trading as the threat of market intervention re-emerged. Local media reported that Prime Minister Sanae Takaichi was considering calling early lower house elections on February 8.

A weak yen and expectations of more stimulus sent the Nikkei up more than 1.0 percent to a record and pulled Japanese government bonds lower; This is the so-called “Takaichi trade”, which appears to be turbocharged this week as investors worry about the country’s financial health.

Masahiko Loo, senior fixed income strategist at State Street Investment ‌Management, said the market moves reflected expectations of fiscal easing, but they may have been exaggerated given political constraints as Takaichi’s coalition needed opposition support in the upper house to pass the law.

“Any sharp and decisive break above the 161 level (for the yen) could trigger renewed intervention to curb excessive volatility,” Loo said. “In this scenario, expectations for a Bank of Japan interest rate hike could shift to April, potentially serving as a turning point for currency dynamics.”

MSCI’s broadest index of Asia-Pacific shares rose 0.2 percent, just below the record high reached on Tuesday. Overnight, US stocks fell as financial stocks fell after JPMorgan executives raised concerns about Trump’s latest proposal to cap credit card interest rates.

Chinese stocks rose 0.7 percent in early trading, just below a 10-year high hit on Tuesday. European stock futures rose 0.1 percent, indicating a quiet open.

Tuesday’s data showed that inflation pressures moderated last month. US economists said this showed that the impact of import tariffs on prices has slowed and interest rate cuts remain on the table this year, but the general expectation is that the Fed will remain at the same level this month.

Investors are pricing in at least two rate cuts this year, and a move isn’t expected until Fed Chairman Jerome Powell’s term ends in May.

Matt Simpson, StoneX’s senior market analyst, said U.S. inflation hasn’t slowed enough to move the needle toward rate cuts anytime soon.

“With the lack of economic excitement around the cuts, the U.S. dollar could rise a little further before the tide turns bearish,” Simpson said.

The dollar index, which tracks the dollar’s performance against a number of currencies including the yen and euro, rose slightly to 99.243 after rising 0.2 percent in the previous session.

The dollar fell at the start of the week as investors worried about the Fed’s independence in the Trump era after the US Justice Department threatened to indict Fed Chairman Powell in connection with a building renovation project.

That prompted a sharp rebuke from Powell, and global central bank officials later issued a coordinated statement of support for him on Tuesday.

Steve Lawrence, chief investment officer of Balfour Capital Group, said markets viewed this incident as largely political rather than a serious corporate threat.

“Powell’s characterization of any threat of impeachment as intimidation reinforces this interpretation and signals institutional defensiveness rather than escalation,” Lawrence said. “From a market perspective, this suggests that the current guardrails around the Fed are still seen as intact.”

In commodities, gold rose 0.6 percent to US$4,613.93 ($6,907.54) per ounce, while silver rose more than 2.0 percent to a record high.

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