Japan banks lead Nikkei higher following BOJ rate hike

July 31, 2024

Key points:

The Nikkei index increased by 0.25%, supported by banking stocks after the BOJ rate hike.
Banks attracted substantial foreign investments, with net stock purchases reaching 472 billion yen.

Japan’s Nikkei share average rose on Wednesday, buoyed by banking stocks after the Bank of Japan (BOJ) raised interest rates for the second time since 2007. The Nikkei index was up 0.25% at 38,620.85 as of 0421 GMT, reversing earlier losses. The broader Topix index also turned positive, trading 0.37% higher.

The chart displays the 1-hour price movement of the Nikkei225 index. The trend is up by 1.39%. The opening price is 38,071.65, the closing price is 38,599.15, the high is 39,279.15, and the low is 37,959.15. The chart includes moving averages (5, 10, 20, 30), showing an upward trend with prices recently spiking above the moving averages. The MACD (26, 16, 9) histogram indicates strong bullish momentum, with the MACD line significantly above the signal line. Trading volume shows a notable increase during the recent price spike. The chart reflects a bullish market sentiment for the Nikkei225 index.

See: Nikkei225 on the rise as seen on the VT Markets app.

BOJ hikes key rate to 0.25%, signaling shift towards policy tightening

The BOJ raised its key rate target to 0.25% from around zero, reflecting heightened expectations for policy tightening. This move followed reports suggesting that the BOJ was considering such a step, and several high-profile Japanese politicians, including the prime minister, had also advocated for a near-term normalisation of monetary policy.

The Bank of Japan should more clearly show its intention to normalize monetary policy, according to ruling party heavyweight Toshimitsu Motegi in remarks a week before the central bank meets to decide whether to hike rates https://t.co/Nl1I82bAa7
— Bloomberg Economics (@economics) July 27, 2024

The Tokyo Stock Exchange’s banking index surged 2.7%, making it the top performer among the 33 industry groupings. Higher interest rates are expected to improve lending margins and potentially boost investment income for banks. A Topix index of value shares rallied 0.8%, while a growth share index dipped 0.2%.

Exporter stocks weaken as yen strengthens

Stocks of exporters, including automakers, showed weakness after the yen strengthened by about 0.8% against the dollar on Tuesday. Toyota Motor was among the worst performers on the Nikkei, also affected by a corrective order from Japan’s transport ministry over violations in vehicle certification procedures. The stock dropped as much as 4.2% and was last down 2.4%.

Banks lured an estimated 472 billion yen ($3.1 billion) of net stock purchases in the year to July 25, more than double the flows into the automobiles and components sector, another top performer.

BOJ rate hike signals tighter policy, impacting banks and exporters

The BOJ’s recent rate increase, following its first hike in March since 2007, underscores a shift towards tighter monetary policy. This change has significant implications for various sectors, particularly banks and exporters.

As the yen strengthens and interest rates rise, banks stand to gain from improved lending margins, while exporters may face headwinds due to currency fluctuations.

Also read: Dollar and yen remain steady as markets await BOJ and Fed decisions

The BOJ’s decision to raise rates has provided a boost to the banking sector, driving the Nikkei higher. However, the impact on exporters and automakers highlights the diverse effects of monetary policy changes across different sectors.

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