Nikkei tops 70,000 for first time as BOJ rate hike boosts confidence in Japan’s economy – Firstpost

Japan’s benchmark Nikkei stock index surged past the 70,000-mark for the first time on Tuesday, hitting a fresh record high after the Bank of Japan (BOJ) delivered a widely expected interest rate hike while signalling a gradual approach to further policy tightening.

The Nikkei Stock Average climbed as much as 0.8 per cent during afternoon trade, touching an all-time high of 70,000 before settling slightly lower. The rally came after the BOJ raised its
benchmark policy rate to 1 per cent, the highest level since 1995, in a move that investors had largely priced in.

Market participants welcomed the central bank’s message that monetary conditions would remain accommodative despite the latest increase in borrowing costs, easing concerns that a faster tightening cycle could undermine economic growth and corporate earnings.

The broader Topix index also recovered from morning losses to trade 0.2 per cent higher, reflecting improved investor sentiment following the BOJ’s decision.

Investors cheer gradual tightening

The central bank’s rate hike marks another milestone in Japan’s shift away from decades of ultra-loose monetary policy. However, investors appeared reassured by the absence of any indication that policymakers were preparing to accelerate the pace of future increases.

Analysts said the BOJ’s communication suggested that while it remains committed to normalising policy, it is unlikely to tighten aggressively at a time when uncertainty over global growth and energy prices remains elevated.

The decision came during Tokyo’s midday trading break, limiting the immediate market reaction. However, equities extended gains when trading resumed as investors focused on the central bank’s cautious tone.
The move also reinforced confidence that Japan’s economy is strong enough to withstand higher borrowing costs after years of deflation and sluggish growth.

Yen strengthens, bonds decline

The Japanese yen maintained a slightly firmer tone against the US dollar following the announcement, trading around 160.2 per dollar.

Despite the modest gain, the currency remained near levels that have previously prompted concern among Japanese policymakers, with the 160-per-dollar threshold widely viewed by markets as a potential trigger for intervention.

A weak yen has been a key challenge for Japan, raising import costs and contributing to inflation pressures, particularly through higher energy prices.

Japanese government bonds weakened after the BOJ’s decision, pushing yields higher. Benchmark 10-year government bond futures fell, while the yield on the 10-year bond edged up to 2.625 per cent.

Bond yields move inversely to prices and tend to rise when investors anticipate tighter monetary conditions.

AI and data-centre stocks lead gains

The record rally in the Nikkei was driven by strong gains in technology and infrastructure-related stocks, particularly companies benefiting from the global artificial intelligence boom.

Among the top performers was chip-testing equipment maker Advantest, which rose more than 5 per cent and provided a significant boost to the index due to its heavy weighting.

Data-centre and power infrastructure plays also attracted strong buying interest. Fujikura jumped nearly 10 per cent, while Furukawa Electric gained more than 7 per cent as investors continued to bet on rising demand for AI-related hardware and networking equipment.

The gains in a handful of large-cap technology stocks helped offset weakness elsewhere in the market. Of the Nikkei’s 225 constituents, more stocks declined than advanced, highlighting the outsized influence of a small group of heavyweight shares.

Confidence in Japan’s recovery

Tuesday’s milestone comes amid growing optimism about Japan’s economic outlook and corporate earnings prospects.

The BOJ’s decision to raise rates to their highest level in more than three decades underscores policymakers’ confidence that inflation is becoming more sustainable after years of deflationary pressures.

While higher energy costs linked to the Iran conflict have contributed to inflation, investors increasingly view Japan as entering a new economic phase characterised by rising wages, stronger corporate profitability and more normal monetary conditions.

The Nikkei has been one of the world’s best-performing major equity benchmarks in recent years, supported by corporate governance reforms, strong earnings growth and sustained foreign investor inflows.