The Japanese Nikkei index (JP225) rose 0.95% on Friday, which is the opposite of what might seem like the natural consequence of the Bank of Japan’s decision to raise interest rates. The key to understanding this move lies in the decidedly dovish tone of the BoJ’s communication, as presented by Governor Ueda during a press conference. Although the interest rate rose to 0.75% (the highest since 1995) the Bank of Japan clearly signaled that real interest rates would remain significantly negative, which means maintaining expansionary financial conditions for businesses and consumers.
Stock market investors are particularly positive about the prospect of a relatively long break before the next rate hike, which may not occur until the end of July or September 2026. This is a seven-month horizon, which gives companies sufficient time to adapt to the current rate hike and plan for revenue growth while maintaining expansionary credit conditions. In addition, investors note the complete absence of any mention in the BoJ’s statement of the process announced in September to reduce the bank’s balance sheet by selling its ETF holdings especially given that this process was supposed to begin in early 2026.
The rise in the JP225 is also driven by Ueda’s optimistic assessment of the Japanese economy, citing Tankan data pointing to reduced uncertainty about corporate earnings forecasts and expected wage growth to continue next year. For Japanese companies listed on the Nikkei, this is a signal that the BoJ does not threaten business growth and profitability, while leaving the door open for further normal financial operations.
JP225 rebounded from the 50-day EMA (blue curve on the chart), which has been a key support point on the chart since June this year. As long as the contract remains above this barrier, the long-term uptrend is likely to continue.
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