The Japanese equity market concluded a historic week with the Nikkei 225 surging to fresh all-time highs, closing Friday at 58,850.27. Fuelled by a decisive election mandate for Prime Minister Sanae Takaichi and expectations of aggressive fiscal spending, the benchmark index posted a weekly gain of 3.56%, cementing its position as one of the world’s top-performing major indices for early 2026.

The ‘Sanae Bump’ and Fiscal Optimism

The driving force behind February’s explosive 10.37% monthly gain is undoubtedly the political landscape. Following the Liberal Democratic Party’s landslide victory, markets have aggressively priced in the impact of “Sanaenomics”—a policy mix emphasizing robust fiscal stimulus and corporate deregulation. Investors are betting that the administration’s pledge to deploy significant capital into the domestic economy will sustain growth, even as global headwinds persist. This political stability has re-accelerated foreign inflows, with global funds viewing Japan as a stable alternative to increasingly volatile US and European markets.

Sector Rotation: Tech Pauses, Blue Chips Shine

While the headline number is bullish, beneath the surface lies a distinct sector rotation. Technology stocks, the darlings of the 2025 rally, faced headwinds this week. Despite robust earnings from global peers like Nvidia, domestic semiconductor giants such as Advantest and Tokyo Electron saw profit-taking, weighing on the index mid-week. Conversely, classic blue chips surged on shareholder return news. Sony Group jumped over 7% after expanding its share buyback program to 250 billion yen, and Nintendo posted gains on similar capital allocation updates. This rotation suggests the rally is broadening beyond just AI themes, a healthy signal for long-term sustainability.

Macro Tensions: BOJ vs. The Cabinet

A key dynamic to watch is the diverging signals between the government and the central bank. While the Takaichi administration pushes for pro-growth liquidity, Bank of Japan board member Takata recently signaled a preference for “gradual” rate hikes to curb inflationary pressure, which is currently running near 1.5%. The Yen remains in focus; its recent weakness has boosted export-heavy components, but any aggressive hawkish pivot from the BOJ could introduce volatility. For now, the market appears comfortable with the “tug-of-war” between fiscal expansion and monetary normalization.

Outlook

The path to 60,000 appears increasingly open, with technical momentum firmly favoring the bulls. However, investors should monitor the upcoming BOJ policy meeting notes and US non-farm payroll data next week, which could trigger short-term volatility. The primary risk remains a sharp appreciation of the Yen or a faster-than-expected cooling in the global AI trade. Conversely, if the Takaichi administration unveils the specifics of its stimulus package early next month, the Nikkei 225 could easily breach the psychological 60,000 barrier before the quarter ends.