Asian stocks reached their highest levels in six weeks on Friday, buoyed by a surge in precious metals as investors aimed to conclude the year on a positive note. A softer Japanese yen has also reignited concerns about potential government intervention in currency markets.
With many markets across Australia, Hong Kong, and parts of Europe closed for the holiday, trading volume was expected to be limited. However, investor sentiment appeared robust this week, suggesting a vigorous end-of-year rally.
Japan’s Topix index climbed 0.5% to a record high, while South Korea’s benchmark index rose by 0.6%, marking an impressive annual gain of 72%, making it the world’s best-performing major stock market for the year. China’s blue-chip stock index saw a 0.27% increase and is poised to finish the year with an 18% gain, its strongest performance since 2020. These factors combined pushed the MSCI’s Asia-Pacific index to its highest level since mid-November, reflecting a 25% increase year-to-date.
Attention in the markets also focused on precious metals, particularly silver, which surged over 4% to an all-time high on Friday. Gold prices also reached a peak, trading at $4,503.39 per ounce. Soojin Kim, a commodities analyst at MUFG, noted that heavy central bank purchases, strong inflows into gold-backed ETFs, and investor concerns regarding currency debasement and escalating global debt have fuelled this rally. This year, gold has surged by over 71%, set to achieve its strongest annual gain since 1979, while silver has appreciated a staggering 158%.
As the new year approaches, investors are turning their attention to anticipated cuts in U.S. interest rates from the Federal Reserve. Traders are factoring in at least two potential rate reductions in 2026, although no changes are expected prior to June. Currently, the central bank is projecting one additional rate cut next year, but the outlook has been complicated by a divided Federal Reserve, leaving investors uncertain.
The U.S. dollar has been under pressure as a result of these developments, causing the euro, sterling, and Swiss franc to reach recent highs. The dollar index, assessing the U.S. dollar against six major rivals, is set for a 0.8% decline for the week, marking its weakest performance since July.
In the currency markets, the Japanese yen traded slightly weaker at 156.23 per U.S. dollar but was on course for a weekly gain of 1%, its largest increase since late September. Despite a well-anticipated interest rate hike from the Bank of Japan, market responses indicate that investors perceive caution regarding future hikes. Analysts suggest that the central bank’s ambiguous communication aims to maintain flexibility regarding the timing of further rate adjustments.
With trading volumes expected to thin toward the year-end, investors remain vigilant for any intervention by Tokyo, particularly as a strategic move could have significant ramifications. Meanwhile, benchmark Japanese government bonds garnered slight gains on Friday, with a restrained debt issuance outlook contributing to a decline in yields from a 26-year high, alleviating some market apprehension regarding Prime Minister Sanae Takaichi’s expansionary fiscal policy.
