In a result that didn’t surprise, Japan’s Prime Minister Takaichi secured a decisive victory in the snap election, winning a record 316 seats in the lower house for her Liberal Democratic Party. Since taking office towards the end of last year, she has enjoyed exceptionally high approval ratings, which helped drive the strong result. Together with seats held by her coalition partner, the Ishin Party, the government now controls 352 seats in the chamber.
A large part of Takaichi’s domestic popularity stems from her pledge to ease household living costs, through a two‑year suspension of the consumption tax. She has also been vocal about the need to increase fiscal spending on infrastructure and defence. The challenge now is identifying revenue sources to offset both the tax suspension and the additional spending, which together are estimated to cost around ¥5 trillion (approximately $32 billion) per year. Markets remain cautious about the potential for increased government debt issuance or even a drawdown of Japan’s foreign‑exchange reserves, both of which could place further downward pressure on the yen. Despite these concerns, the Nikkei 225 rose more than 6% over the week, reaching a new high of 58,000.
In the UK, there was also movement within politics as Prime Minister Sir Keir Starmer’s chief of staff, Morgan McSweeney, resigned on Sunday. He accepted responsibility for advising the Prime Minister to appoint Peter Mandelson as ambassador to the US despite Mandelson’s known links to Jeffrey Epstein. The fallout prompted calls for the Prime Minister to step down, including from the leader of the Scottish Labour Party. However, Mr Starmer remained firm, insisting he intends to complete his mandate and fulfil his responsibilities to the country.
UK GDP offered little relief, with Q4 delivering just 0.1% growth and falling short of market expectations. Economists had anticipated a modest pickup to around 0.2%, particularly after the period of uncertainty ahead of the Reeves autumn budget. Manufacturing continued to be a positive contributor, but this was offset by a flat services sector and a 2.1% contraction in construction. The Bank of England will be paying close attention to these developments ahead of its next meeting, as persistently weak growth strengthens the case for a rate cut sooner rather than later.
We saw the delayed US labour market data for January this week, with non‑farm payrolls rising by 130,000 and the unemployment rate edging down to 4.3%. Healthcare employment increased by 82,000 — the strongest monthly gain since July 2020 — while construction added 33,000 jobs. In contrast, government employment declined by 34,000. Market reaction to the report was relatively muted, largely because investors expect the figures to be heavily revised. This caution follows the Bureau of Labor Statistics’ recent revisions showing the economy added only 181,000 jobs over 2025, a sharp downgrade from the previously estimated 584,000.
This Friday afternoon, US CPI data was released, showing headline inflation fell encouragingly from 2.7% to 2.4% in January. Core inflation (excludes food and energy prices) also dipped from 2.6% to 2.5%, in line with market expectations. This follows the most recent Federal Reserve meeting, where governors expressed confidence that inflation would moderate. While Fed Chair Powell is not expected to oversee another rate cut before his term ends in May, markets have grown increasingly optimistic, the futures markets have now priced in a third interest rate cut this year, with bets rising to 50%.
US equity markets, S&P 500 and the Nasdaq, declined over the week as investors attempt to determine which companies stand to benefit and which may be the losers in artificial intelligence (AI) technology. Take Applovin, for example: the advertising‑software company posted strong earnings, yet, like many software names, it faces pressure from concerns that AI could diminish demand for its services. CEO Adam Foroughi noted a “disconnect between market sentiment and the reality of our business,”. The fallout has not been limited to software stocks. The launch of a new AI wealth platform triggered declines across major UK wealth‑management firms, including St. James’s Place, Quilter and AJ Bell, as markets reassessed the competitive threat posed by AI‑enabled financial services.
Nathan Amaning, Investment Analyst
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