Nikkei set to snap lengthy dropping streak as JGBs rally and tariff fears ease

Japan’s Nikkei is rebounding as JGBs extend gains and global risk sentiment improved after Trump softened tariff and Greenland rhetoric.

Summary:

• Nikkei rebounds after five straight declines

• Topix also higher as sentiment improves

• JGB rally extends after super-long rout

• Fiscal jitters remain ahead of election

• Trump comments ease tariff risks

Japan’s equity market looked set to snap a five-session losing streak on Thursday, with the Nikkei 225 jumping more than 1% as government bonds extended their recovery and offshore risk sentiment improved after fresh signals from US President Donald Trump eased immediate tariff and geopolitical concerns.

The Nikkei rose 1.6% to 53,667.72 by early afternoon in Asia, putting it on track to end its longest run of daily declines in about a year. The broader Topix advanced 0.9% to 3,623.72, supported by a calmer tone in rates and a firmer lead from Wall Street overnight.

This month’s sharp swings have been tightly linked to politics and the bond market. Japanese stocks rallied last week on expectations that Prime Minister Sanae Takaichi would pursue looser fiscal settings, only to reverse this week as investors grew uneasy after she pledged to suspend the 8% food levy for two years, a move that revived questions about Japan’s fiscal trajectory. Takaichi is due to dissolve parliament on Friday, triggering a snap election, keeping politics front and centre for markets.

Those fiscal concerns hit JGBs hard earlier in the week, particularly in the super-long sector, where yields surged to record highs and rattled equity sentiment. In Thursday’s session, however, bonds extended their rebound: the 30-year JGB yield fell for a second day, easing as much as 4 basis points to 3.68%, after spiking to a record 3.880% on Tuesday. With yields moving inversely to prices, the bond rally helped soothe fears that a disorderly sell-off in Japan’s rates market was becoming systemic.

Equities also benefited from improved global risk appetite after Trump dropped tariff threats against European allies and ruled out seizing Greenland by force, removing a near-term tail risk that had been weighing on sentiment.