Written by Ilaria Massei
The initial market reaction to Sanae Takaichi’s decisive election victory was positive, and optimism continued throughout the week, with the MSCI Japan rising +5.9%. Given Japan’s recent history of short-lived governments, a strong majority increases the likelihood that she can deliver on her policy agenda, which is designed to support both businesses and consumers.
The Japanese bond market is historically more cautious, particularly regarding the initially proposed spending program. However, Prime Minister Takaichi has since adopted a measured, market-aware stance, easing concerns about excessive government spending. We are also monitoring where Japanese investors are directing their capital. While they currently hold significant investments abroad, a shift back to domestic assets could have a meaningful positive impact on Japan’s bond and equity markets.
In the US, annual inflation slowed to 2.4% in January – its lowest level since May 2025- down from 2.7% in the previous two months and below the 2.5% consensus forecast. This suggests moderating price pressures without a material slowdown in growth, which is a positive outcome. In contrast, China’s CPI decelerated to 0.2%, well below expectations, which justifies the government’s continued policy support measures. The S&P 500 and MSCI China indices, representing each country’s equity markets, both closed the week in negative territory, declining by -1.4% and -0.2% respectively. On a more positive note, the softer inflation reading in the US supported bond prices, particularly longer-dated maturities, with the Bloomberg US Treasury 20+ Years Index rising +2.5% in USD last week.
Meanwhile, disruption risks in software and services dominated recent market moves, largely triggered by Anthropic’s latest product launch. Its new legal automation tool and expanded AI capabilities drove a sharp global rotation out of software and related sectors. Investors are increasingly questioning the sustainability of pricing power and margins in data and professional services businesses. However, companies such as London Stock Exchange Group, which was among the stocks that were sold off, retain a strong, differentiated franchise, and the recent sell-off may offer an attractive opportunity for active managers to buy or add to already owned positions in these companies.
Despite heightened volatility and sector rotations year to date, Japanese and Emerging Market equities have performed well. With relatively more attractive valuations than the US, alongside cyclical tailwinds, a weaker dollar, and growing scrutiny of US exceptionalism, the case for diversification beyond concentrated US and USD exposure appears increasingly compelling.
All performance figures are stated in Sterling terms, unless otherwise specified.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th February 2026.
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