GLOBAL MARKETS: Asian stocks, gold, silver hit records but yen remains fragile

Asian stocks rose on Wednesday, buoyed by Japanese shares, as investors braced for a snap election in Japan that could lead to more fiscal stimulus, while worries about central bank independence and benign U.S. inflation data whipsawed currencies.

Geopolitical tensions across the globe lifted gold to a record peak and sent oil prices higher as U.S. President Donald Trump urged Iranians to keep protesting, saying help is on the way. Iran in turn accused Trump of encouraging political destabilization and inciting violence.

The Japanese yen JPY= hit its weakest level since July 2024 at 159.415 per dollar in early Asian hours, as the threat of a market intervention resurfaced. Local media reported that Prime Minister Sanae Takaichi was considering calling a snap lower house election on February 8.

The frail yen and the prospect of more stimulus sent the Nikkei .N225up more than 1% to a record and pushed Japanese government bonds lower, a so-called "Takaichi trade" that appears to have been turbocharged this week as investors worry about the country's fiscal health.

Masahiko Loo, senior fixed income strategist at State Street Investment Management, said the market moves reflected expectations of fiscal easing, though they may be overstated given political constraints as Takaichi's coalition would need the opposition's support in the upper house to pass legislation.

"Any sharp and decisive break beyond 161 level (for yen) could trigger renewed intervention to curb excessive volatility," Loo said. "In that scenario, expectations for a Bank of Japan rate hike may shift forward to April, potentially serving as an inflection point for currency dynamics."

MSCI's broadest index of Asia-Pacific shares .MIAP00000PUS was up 0.2% to hover just below a record peak reached on Tuesday. Overnight, U.S. stocks ended lower, led by a drop in financial shares after comments from JPMorgan executives added to worries about Trump's recent proposal for a cap on credit card rates.

Chinese stocks .CSI300 rose 0.7% in early trade, just below a 10-year high that was hit on Tuesday. European stock futures STXEc1 rose 0.1%, pointing to a muted open.

COOLING INFLATION

Data on Tuesday showed moderate underlying inflation pressures last month in the U.S.Economists said this suggested the pass-through of import tariffs to prices was slowing, keeping rate cuts on the table this year, although the broad expectation is for the Fed to stand pat this month.

Traders are pricing in at least two rate cuts this year, with a move not expected until after Fed Chair Jerome Powell's term ends in May.

Matt Simpson, a senior market analyst at StoneX, said U.S. inflation is not slowing sufficiently to move the needle towards imminent rate cuts.

"With lack of enthusiasm for cuts from an economic perspective, the US dollar might enjoy a bit more of a bid before the tide reverts to bearish hands," Simpson said.

The dollar index =USD, which tracks the greenback's performance against a basket of currencies including the yen and the euro, inched higher to 99.243 after rising 0.2% in the previous session.

The dollar was knocked back at the start of the week as investors worried about Fed independence under Trump after the U.S. Department of Justice threatened to indict Fed Chair Powell in connection with a building renovation project.

That led to a sharp rebuke from Powell and global central bank officials later issued a coordinated statement of support for him on Tuesday.

Steve Lawrence, chief investment officer of Balfour Capital Group, said markets appeared to view this episode as largely political rather than a substantive institutional threat.

"Powell's characterization of any threat of indictment as intimidation reinforces that interpretation, signalling institutional defence rather than escalation," Lawrence said. "From a market perspective, this suggests existing guardrails around the Fed are still seen as intact."

In commodities, gold XAU= rose 0.6% to $4,613.93 per ounce and silver XAG= surged more than 2%, also climbing to a record high.

-Ankur Banerjee/Reuters