Japanese markets moved sharply higher after the Bank of Japan announced an interest rate hike, pushing borrowing costs to their highest level in nearly 30 years. The move reflects the central bank’s growing confidence that inflationary pressures are no longer temporary.
The Bank of Japan raised its benchmark policy rate by 25 basis points to 0.75%, a level last seen in 1995. The decision was widely expected and aligned with forecasts from economists surveyed by Reuters.
Recent data shows that inflation in Japan remains above the central bank’s target. Consumer prices rose 2.9% in November, slightly lower than the previous month, while core inflation — which excludes fresh food prices — stayed steady at 3%, matching market expectations.
Following the announcement, Japanese equities surged. The Nikkei 225 climbed around 1.3%, while the broader Topix index gained just over 1%. At the same time, the Japanese yen weakened modestly, slipping to around 156 per U.S. dollar.
Bond markets also reacted strongly. Yields on Japan’s 10-year government bonds rose to about 2%, their highest level since 2006, while 20-year bond yields edged closer to 3%.
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According to Ken Matsumoto, a Japan macro strategist at Credit Agricole-CIB, the government’s willingness to support higher interest rates appears to be driven by concerns over the yen’s weakness. He noted that authorities could step in to stabilize the currency if sharp depreciation occurs during the low-liquidity holiday period.
Elsewhere in Asia, markets largely traded higher. South Korea’s Kospi advanced around 0.8%, while the Kosdaq jumped nearly 1.5%. Australia’s S&P/ASX 200 rose about 0.5%, and Hong Kong’s Hang Seng Index gained close to 0.6%. China’s CSI 300 and Shanghai Composite also posted moderate gains.
Indian equities continued their upward momentum, with the Nifty 50 rising around 0.5%. Shares of ICICI Prudential AMC surged nearly 20% on their market debut following a major IPO.
Over in the United States, Wall Street rebounded overnight. The S&P 500 ended a four-day losing streak, supported by softer-than-expected inflation data and strong forward guidance from semiconductor giant Micron Technology. The Nasdaq Composite led gains, while the Dow Jones Industrial Average posted a modest rise.
