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Japan’s Nikkei 225 advanced 0.8% in early Tuesday trading, clawing back part of last week’s steep decline as investors shifted back into risk assets amid rising confidence that the Federal Reserve will cut interest rates at its December meeting.
The uptick follows a choppy spell in which the index slid 3.5% last week on concerns over stretched valuations and global political tensions.
Fed Rate Cut Bets Fuel Global Optimism
According to the CME FedWatch Tool, markets are now assigning an 85% likelihood to a 25-basis-point reduction in December.
This repricing was prompted by dovish comments from Fed Governor Christopher Waller, who highlighted signs of softening in the labour market, and San Francisco Fed President Mary Daly, who expressed openness to easing next month.
The yield on the US 10-year Treasury held near 4.03%, while the two-year yield hovered around 3.49%, pointing to steady interest-rate expectations.
At the same time, the US Dollar Index (USDX) edged marginally lower to 100.2, bolstering sentiment across Asian trading.
Tech Stocks Lead The Charge
Technology names led the recovery, tracking a strong rally in the Nasdaq Composite, which jumped 2.69% on Monday, its strongest two-day run since November 2024.
Major players such as Advantest and SoftBank Group helped lift the Nikkei, echoing Wall Street’s tech-driven surge.
The MSCI Asia-Pacific ex-Japan Index climbed 1%, with Taiwan and South Korea posting solid advances as investors wager that looser monetary conditions will extend the AI-fuelled rally that has dominated markets throughout the year.
Cautious Eye On Global Politics
Despite the improved mood, geopolitical issues remain a lingering concern.
Tensions between Tokyo and Beijing continue to simmer after Prime Minister Sanae Takaichi’s comments regarding Japan’s potential military reaction to a crisis in Taiwan.
Even so, indications of warmer US–China relations, including President Donald Trump’s scheduled visit to Beijing in April, have helped ease some nerves.
Technical Analysis
The Nikkei 225 has bounced off recent lows around 48,600, finding interim support at its 50-day moving average.
While the MACD indicator remains in negative territory, it is beginning to flatten, which could hint at stabilising momentum if buying interest persists.
Resistance lies near 49,500, with initial support at 47,800. A sustained close above 49,800 may help reinstate a bullish tone heading into December.
Outlook
With expectations for a Fed rate cut firming and sentiment towards technology stocks improving, Asian equities, particularly in Japan, may enjoy some near-term upside.
However, ongoing concerns over yen weakness, fiscal developments in Japan, and broader US–China diplomatic dynamics could temper gains as the year draws to a close.
