The election of Sanae Takaichi -- expected to become Japan's prime minister this month -- ramped up optimism that she will embark on a campaign of monetary easing.
That sent the Nikkei 225 soaring almost five percent Monday and hammered the yen as investors began questioning the likelihood that the Bank of Japan will continue its interest rate hikes.
And the index continued its run-up on Tuesday, though it pared its earlier gains to end marginally higher. The yen also held losses.
Takaichi's victory "removes uncertainty about the country's policy direction", said Saxo Markets' Charu Chanana. "Her agenda is expected to continue a blend of fiscal support and ultra-easy monetary policy.
"For investors, that continuity means no abrupt tightening and ongoing coordination between the government and the Bank of Japan."
Yields on 30-year Japanese bonds hit their highest level, reflecting fears the country's already colossal debt will balloon further.
Adding to buying sentiment was an announcement by Advanced Micro Devices (AMD) and OpenAI of a partnership to develop AI data centres. The deal comes after OpenAI and Nvidia signed a contract for more than $100 billion in equipment.
OpenAI struck deals this week with South Korean semiconductor giants Samsung and SK hynix for chips and other equipment for its Stargate project.
Tech led gains, having been at the forefront of a global advance this year that has seen several markets hit record highs.
While there are growing worries that huge investments in AI by firms have gone too far, OpenAI's Fidji Simo told AFP she did not consider it a bubble.
"What I am seeing here is a massive investment in computing power, (with) us meeting (this need) for computing power so incredibly badly for a lot of use cases that people want," said Simo, chief operating officer of OpenAI's applications, including its flagship model ChatGPT.
"From that perspective, I really do not see that as a bubble. I see that as a new normal, and I think the world is going to really switch to realising that computing power is the most strategic resource."
Most other markets rose, with Singapore, Wellington, Mumbai, Bangkok, Taipei, Manila and Jakarta all up with London and Frankfurt.
Hong Kong, Shanghai and Seoul were closed for holidays.
Paris fell for a second day while the euro held losses as Sebastien Lecornu, who resigned as prime minister Monday after three weeks in the post, began trying to get cross-party support for a cabinet lineup to pull his country out of political deadlock.
He stood down just 14 hours after naming a cabinet that immediately drew criticism for containing many of the same faces from the previous government that had faced a backlash over a controversial austerity budget.
But President Emmanuel Macron called on him later Monday to reach a plan for the country's "stability".
The broad gains followed new records for the S&P 500 and Nasdaq in New York.
Gold hit a fresh peak of $3,977.44 -- pushing closer to the $4,000 mark -- as investors eye the US government shutdown, with Republicans and Democrats appearing no closer to an agreement.
Bets on the Federal Reserve cutting interest rates this month and the political crisis in France is adding to the allure of the safe-haven asset.
"Democrats are refusing to provide the votes the ruling Republicans need to reopen federal departments unless an agreement is reached on extending expiring 'Obamacare' healthcare subsidies," National Australia Bank's Rodrigo Catril wrote.
"Meanwhile Republican House Speaker Mike Johnson told his members not even to report to Congress unless the Democrats cave.
"Analysts expect the shutdown could last a few weeks before some agreement is reached."
The upbeat mood also saw bitcoin hit a record high of $126,251.
- Key figures at around 0715 GMT -
Tokyo - Nikkei 225: FLAT at 47,950.88 (close)
London - FTSE 100: UP 0.1 percent at 9,486.94
Hong Kong - Hang Seng Index: Closed for a holiday
Shanghai - Composite: Closed for a holiday
Euro/dollar: DOWN at $1.1686 from $1.1713 on Monday
Pound/dollar: DOWN at $1.3452 from $1.3485
Dollar/yen: UP at 150.64 yen from 150.24 yen
Euro/pound: UP at 86.87 pence from 86.86 pence
West Texas Intermediate: UP 0.4 percent at $61.92 per barrel
Brent North Sea Crude: UP 0.4 percent at $65.71 per barrel
New York - Dow: DOWN 0.1 percent at 46,694.97 (close)
dan/mtp
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