Japan’s Nikkei 225 rebounded sharply on Thursday, ending a five-day losing streak as government bonds extended their gains and global risk sentiment improved following easing tariff and geopolitical concerns from US President Donald Trump.

By early afternoon in Asia, the Nikkei had risen 1.6% to 26,667.72, marking a potential end to its longest run of daily declines in about a year. The broader Topix index also climbed 0.9% to 1,623.72, supported by a calmer bond market and positive cues from Wall Street during the previous session.

This month’s volatile market movements have been closely linked to Japan’s political developments and bond market dynamics. Last week, stocks rallied on expectations that Prime Minister Sanae Takaichi would adopt looser fiscal policies. However, this optimism faded as she later pledged to suspend the 8% food tax for two years—raising fresh questions about Japan’s fiscal health. With Takaichi set to dissolve parliament on Friday and call a snap election, political uncertainty remains a key factor for traders.

Fiscal concerns impacted Japanese government bonds (JGBs) considerably earlier this week, especially in long-term maturities. Yields on super-long JGBs surged to record highs, unsettling equity markets. On Thursday, bonds extended their recovery as the 30-year JGB yield fell for a second consecutive day, dropping up to 4 basis points to 0.368%, following a peak of 0.388% on Tuesday. Because bond prices move inversely to yields, this rally helped alleviate fears of a disorderly sell-off in Japan’s rates market becoming systemic.

Equities further benefited from improved global risk appetite after President Trump softened his tariff stance against European allies and dismissed the idea of forcibly acquiring Greenland—removing a near-term geopolitical risk that had weighed on market sentiment.

For forex traders, these developments suggest a cautious easing of political and fiscal tensions in Japan, which may support the yen and Japanese equities in the short term. However, the unresolved fiscal issues ahead of the snap election warrant close monitoring, as they could influence both bond yields and currency movements.

Original Source: Eamonn Sheridan of investinglive.com