Japan’s Nikkei 225 index surged to record highs on Thursday, propelled by investor optimism surrounding a dovish stance from the Bank of Japan (BOJ), despite the central bank’s first rate hike in 17 years.
In morning trade, the Nikkei 225 skyrocketed by nearly 2% to reach a historic peak of 40,787 points, edging closer to the psychologically significant level of 41,000.
The rally was widespread but led by technology stocks, fueled by expectations of heightened demand amid an artificial intelligence boom.
Thursday’s surge was a delayed reaction to the BOJ’s dovish signals, as Japanese markets were closed on Wednesday. Despite raising interest rates by 0.1% and ending negative interest rates and yield curve control policies, BOJ Governor Kazuo Ueda emphasized that monetary conditions would remain accommodative. The central bank also indicated its intention to continue some asset buying measures in the near term.
Uncertainty over Japan’s economy, particularly in private consumption, was highlighted by Ueda, who stressed the need for further indications of a consumption-driven recovery, despite anticipated wage increases.
Japanese stocks drew further strength from Wall Street’s record-breaking performance, following the Federal Reserve’s decision to maintain interest rates and reaffirm its projection for multiple rate cuts this year.
While the initial response to the BOJ’s actions was positive, analysts cautioned that the Nikkei 225 might encounter resistance around the 41,000-point level, potentially leading to range-bound trading in the coming months. Citi analysts emphasized the necessity of Japan-specific catalysts, such as a recovery in domestic demand or sustained inflation, for the index to rally further.
Moreover, the BOJ’s recent move could pave the way for additional monetary tightening if the Japanese economy displays resilience in the future.