The Nikkei 225 index closed up 1.7% at 53,688.89 points, with chip stocks leading the gains. Japan's exports grew again in December, providing further evidence of resilience in the corporate sector, although a decline in exports to the United States served as a reminder that tariff and geopolitical risks persist. Government data released on Thursday showed that Japan's export value increased by 5.1% year-on-year in the final month of 2025. This growth rate was lower than the 6.1% increase seen in November but marked the fourth consecutive month of expansion. Despite volatility caused by tariffs, Japan's annual export value still grew by 3.1%, reaching a record 110.448 trillion yen (approximately $6.9765 trillion), while the trade deficit was more than halved. However, exports to the U.S. fell by 4.1%, causing the trade surplus between the two nations to shrink by nearly 13%. Stefan Angrick, an economist at Moody's Analytics, commented, "Although shipments are currently stable, the outlook is fraught with risks." Prices of Japanese ultra-long-term government bonds extended their gains on Thursday, driven by market expectations that the Ministry of Finance might take measures to prevent further yield increases. The yield on 20-year Japanese government bonds fell to a low of 3.175%, and was last down 5.5 basis points at 3.2%. The yield on 30-year Japanese government bonds dropped 5.5 basis points to 3.655%. Following remarks from Finance Minister Satsuki Katayama, who called for market calm and stated that the government's fiscal policy is not expansionary, Japanese government bonds rebounded from the previous trading session. Naoya Hasegawa, Chief Bond Strategist at Okasan Securities, said, "Katayama's comments have heightened expectations that the Ministry of Finance may take some action to alleviate market concerns about rising yields." Additionally, market expectations have grown that the Bank of Japan might increase its bond purchases from the market during regular operations. Miki Den, a senior Japanese interest rate strategist at SMBC Nikko Securities, noted that the significant drop in yields on Thursday was partly due to scarce liquidity. In a report, interest rate strategists at Barclays stated that while the sharp rise in Japanese yen interest rates might just be a temporary overshoot, uncertainty surrounding fiscal expansion and funding has undoubtedly intensified following the dissolution of the House of Representatives. They indicated that this suggests pressure on ultra-long-term premiums is unlikely to diminish significantly and could even resurge, depending on political developments. "We believe that concerns about debt sustainability are a factor behind the rise in Japanese yen interest rates," they said, adding that uncertainty surrounding fiscal expansion—including a potential consumption tax cut—and related funding has sparked worries about fiscal discipline, leading to a sharp widening of term premiums.
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