Asian stocks reached a record high on Thursday, while the dollar showed slight gains against most currencies, excluding the yen. This movement followed stronger-than-expected U.S. jobs data, which lowered immediate expectations for rate cuts and set the stage for the upcoming inflation report on Friday.
In early trading, stocks in South Korea and Japan hit record highs, driven by advances in the technology sector. Japanese shares have surged following Prime Minister Sanae Takaichi’s decisive election victory over the weekend, which was based on a platform advocating for increased economic stimulus.
As a result, MSCI’s broadest index of Asia-Pacific shares climbed to a new all-time high, rising by 0.65%. This increase brings the index’s gains to approximately 13% within the first six weeks of the year.
This week, the market’s attention is focused on various U.S. economic reports, including data released on Wednesday that showed an unexpected acceleration in job growth in January, alongside a slight decrease in the unemployment rate. These signs of labor market stability could prompt the Federal Reserve to maintain current interest rates in the short term.
Thomas Mathews, Head of Markets for Asia-Pacific at Capital Economics, commented that labor market conditions may be tightening. “If so, investors may be overestimating the case for further easing, and Treasuries could face more challenges,” he said.
Previously, market expectations for a Federal Reserve rate cut of at least 25 basis points at the March meeting had increased to about 20% before the release of the jobs data. However, these expectations fell to around 5% following the report, as indicated by CME’s FedWatch Tool. Despite this, traders are still anticipating at least two rate cuts this year.
The two-year U.S. Treasury yield, which generally aligns with interest rate expectations for the Federal Reserve, stood at 3.512% during Asian trading hours after a 5.8 basis point jump in the previous session—its largest single-day gain since late October. Meanwhile, the yield on the benchmark U.S. 10-year Treasury note was at 4.186%.
The higher yields provided support for the pressured dollar, which recovered slightly against most currencies. However, analysts caution that uncertainties surrounding Federal Reserve independence and policy risks indicate that the dollar will require more positive data surprises to maintain its rebound.
“Improving global growth prospects and the continued outperformance of non-U.S. equities sustain the case for USD weakness,” noted OCBC strategists in a report.
The inflation data due on Friday will be the next crucial test for market perspectives on interest rate cuts. Despite the dollar’s strength, the yen was an outlier, firming again to reach 153.02 per U.S. dollar. The yen has risen nearly 3% since Takaichi’s victory, as investors speculate that the significant mandate could lead to fiscal responsibility by the government, eliminating the need for negotiations with opposition parties.
“Yen shorts are collectively reassessing positions, although at this stage, the bearish trend in JPY that began in early 2025 appears more like a reversion to the mean rather than the start of a structural bull market,” observed Chris Weston, Head of Research at Pepperstone. “That said, traders need to remain open-minded as the macroeconomic landscape evolves, and the market determines where it ultimately wants to take JPY.”
In the commodities market, oil prices continued their upward trend amid concerns about rising tensions between Iran and the U.S. Brent crude oil futures increased by 0.4% to $69.68 per barrel, while U.S. West Texas Intermediate crude rose by 0.46% to $64.93.
Spot gold was down 0.44%, priced at $5,058.49, after experiencing a rise of over 1% in the previous session.
