Nikkei 225 Rallies as Bank of Japan Hikes Rates

The Nikkei 225 index rose sharply on September 18, reaching approximately 65,350 after the Bank of Japan raised its benchmark lending rate from 1 percent to 1.25 percent. This marks the highest interest rate level in 31 years. The index had already begun a two-session gain earlier in the day, rising 0.88 percent to 64,701.55 based on positive cues from Wall Street.

Despite the rate hike, stocks rallied because investors viewed the 7-2 board vote as less hawkish than anticipated. This perception led to a weaker yen, trading around 157 to the dollar, and lower short-term government bond yields. The environment triggered significant buying in artificial intelligence and semiconductor shares, specifically Advantest, Tokyo Electron, and SoftBank Group. Conversely, bank and insurance shares declined as expectations for aggressive future tightening diminished.

The rally was further supported by a pullback in Brent crude oil prices and gains in U.S. technology shares. Market participants are now monitoring Governor Kazuo Ueda for guidance on potential further rate hikes in December to determine the balance between economic stability and inflation control. This activity follows economic data showing Japan's core inflation eased to 1.7 percent in August, the first slowdown in four months.