Asian markets surged on Tuesday, led by a powerful rally in Japanese equities, as investor enthusiasm around artificial intelligence continued to fuel risk appetite across the region. At the same time, lingering doubts over the independence of the U.S. Federal Reserve weighed on the dollar and pushed gold to unprecedented highs, while rising geopolitical tensions in the Middle East lifted oil prices.
Japan’s benchmark Nikkei index roared back from a public holiday, jumping 3.4 per cent to fresh record highs. The rally was underpinned by a sharply weaker yen, which boosts the overseas earnings of Japan’s export-heavy corporate sector, and renewed speculation that Tokyo could unveil further fiscal stimulus to support growth. Technology and semiconductor-related stocks were among the biggest gainers, reflecting sustained optimism over global demand linked to artificial intelligence.
The upbeat mood was not confined to Japan. South Korea’s KOSPI and Taiwan’s Taiex both touched all-time peaks, buoyed by strong performances in chipmakers and AI supply-chain firms. Chinese blue-chip shares also advanced, with the CSI300 index climbing to its highest level in four years as investors warmed to signs of stabilisation in the world’s second-largest economy.
“We see global equities continuing to climb in 2026, targeting around 10 per cent upside for the MSCI AC World by year-end,” analysts at Citi said in a note. While they cautioned that elevated valuations leave markets vulnerable to earnings disappointments, they argued that a “soft landing” macroeconomic environment, solid earnings revision momentum and the broadening impact of AI adoption should continue to support risk assets.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8 per cent to a new record, underscoring the strength of the regional rally.
European markets were more subdued in early trade. EUROSTOXX 50 futures edged up 0.2 per cent, while Germany’s DAX futures added 0.1 per cent. FTSE futures in London were flat, reflecting a cautious tone ahead of key economic data and corporate earnings later in the week.
U.S. equity futures pointed modestly lower, with S&P 500 futures down 0.2 per cent and Nasdaq futures easing 0.3 per cent. Investors were positioning ahead of a closely watched U.S. consumer price inflation report for December, which is expected to show core inflation ticking up slightly to 2.7 per cent year-on-year. Some analysts, including those at Goldman Sachs, are forecasting a firmer 2.8 per cent reading, which could complicate the outlook for interest rate cuts.
Earnings season also begins in earnest this week, with major U.S. banks including JPMorgan Chase, Bank of New York Mellon, Citigroup and Bank of America set to report. Investors are expected to press bank executives on the potential implications of President Donald Trump’s call for a one-year cap on credit card interest rates at 10 per cent, due to take effect from January 20.
The banking industry has already warned that such a measure could sharply restrict access to credit, potentially affecting millions of households and small businesses. Critics argue that the policy could amount to an unintended tightening of monetary conditions, even as the administration pushes for lower interest rates.
Adding to market unease is the U.S. Justice Department’s criminal investigation into Federal Reserve Chair Jerome Powell, a development that has raised fresh concerns about the central bank’s independence. Analysts fear that political pressure could push the Fed to keep rates too low for too long, increasing the risk of a renewed surge in inflation down the line.
Those worries were reflected in currency markets. The dollar index hovered near 98.883 after falling 0.25 per cent overnight. The euro edged up to $1.1665, while the dollar slipped to 0.7972 against the Swiss franc, a traditional safe haven. The greenback held firmer against the Japanese yen, trading around 158.40, though the yen itself remained under pressure near multi-year lows against several major currencies.
Japan’s Finance Minister Satsuki Katayama said she had raised concerns about what she described as the yen’s “one-sided depreciation” in discussions with U.S. Treasury Secretary Scott Bessent, signalling that Tokyo remains alert to excessive currency weakness.
The uncertainty surrounding U.S. monetary policy and geopolitics provided a strong boost to precious metals. Gold surged above $4,600 an ounce for the first time on record before easing slightly to around $4,582.
“Gold serves as a catch-all, and a default hedge of last resort for fear and uncertainty,” said Christopher Louney, a gold strategist at RBC Capital Markets. He cited gold’s status as a store of value, its resistance to debasement and the fact that it is no one else’s liability. Louney added that uncertainty should remain a powerful driver for gold prices in 2026, forecasting potential gains to as high as $5,200 an ounce by the end of the year.
Oil prices also advanced, reaching seven-week highs as unrest in Iran stoked fears of supply disruptions. Demonstrations against the Iranian government have intensified, raising the prospect of tighter enforcement of sanctions and a decline in exports from the OPEC member. Brent crude rose 0.5 per cent to $64.19 a barrel, while U.S. West Texas Intermediate gained 0.5 per cent to $59.81.
Further complicating the outlook, President Trump warned that any country continuing to do business with Iran would face a 25 per cent tariff on its trade with the United States, a threat that has added a new layer of geopolitical risk to already tight energy markets.
