Asian stock markets experienced gains on Tuesday, fueled by a potential easing of trade tensions between the United States and China, which bolstered investor confidence. Meanwhile, Japan’s Nikkei surged to a record high amid strong expectations that Sanae Takaichi will become the nation’s next prime minister.
US President Donald Trump expressed optimism about reaching a fair trade agreement with Chinese President Xi Jinping and minimized concerns regarding possible conflicts related to Taiwan. The trade discord between the US and China has impacted market dynamics in recent weeks, with keen investor interest in Trump’s forthcoming meeting with Xi at an economic conference in South Korea next week.
The optimism surrounding a possible resolution lifted investor sentiment significantly. MSCI’s broadest index of Asia-Pacific shares outside Japan reached its highest level in over four and a half years, up 0.94%. Chinese stocks rose by 0.2%, and Hong Kong’s Hang Seng Index increased by 1% in early trading.
In Australia, shares surged as investors focused on rare earths and critical minerals, following the nation’s signing of a supply agreement with the US. Japan’s Nikkei index climbed 0.86% to record levels and approached the significant milestone of 50,000 points, ahead of a parliamentary vote widely expected to confirm Takaichi, a fiscal dove, as the next prime minister.
Investor sentiment had taken a hit last week due to concerns over bad loans linked to US regional banks, raising credit risk fears that could affect the broader market. Additionally, a lengthy US government shutdown contributed to this unease. However, investors have since shown resilience, buying into the market while anticipating earnings disclosures from several major companies and hoping for a decrease in trade tensions.
Chris Weston, head of research at Pepperstone, noted, “The market has hurdled the wall of worry with ease, with new capital injected into risk and fresh oxygen into the market’s lungs.” Expectations of the Federal Reserve cutting interest rates in upcoming meetings and remarks from White House economic advisor Kevin Hassett about the government shutdown likely concluding this week have also contributed to favorable sentiment. A broad market rally pushed all three major US stock indexes to close significantly higher overnight, with semiconductor stocks reaching record highs.
Analysts project that S&P 500 earnings growth in the third quarter will be 9.3% year-on-year, a revision from their earlier estimate of 8.8% on October 1.
As the parliamentary vote looms, attention centers on Takaichi, who appears poised to become Japan’s first female prime minister. The yen strengthened slightly, trading at 150.61 per dollar after having declined the previous session, as investors looked to Takaichi’s prospective premiership, which enjoys support from the right-wing opposition party Ishin.
Experts anticipate Takaichi to favor stimulus measures and oppose further interest rate hikes, a twin influence likely detrimental for the yen and bonds but positive for equities. Other currencies showed limited fluctuations, with the euro maintaining steadiness at $1.1649, and the dollar index showing little change at 98.575.
Gold prices remained near record highs amid safe-haven demand and speculation surrounding US interest rate cuts, with spot gold easing slightly to $4,350 per ounce, just beneath Monday’s record peak of $4,381.21.
Published on October 21, 2025.
