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TOKYO – Japan’s stock market experienced a major boost on Monday as it hit a record high even after the Bank of Japan announced that it was increasing interest rates to 0. 75%, the highest in many years. This rally, which broke all previous records, shows that investors believe in the continued growth of the economy, although the central bank has taken a step back from its policy of cheap money.
The Nikkei
225 index shot up by over 2. 3% at closing, surpassing its 1989 peak, which was
the highest during the nation’s bubble period. The Topix index also went up for
the first time, above three times as much as it has been for thirty years, because companies were doing well, buying back their shares and feeling better
about how they matched up against other countries globally.
According
to market analysts, this move is an indication that the increase in interest
rates portrays a strong rather than a weak Japanese economy. For many years now,
investors have waited to see if Japan could achieve some inflation and wage growth
without too much intervention from the central bank.
Why
Investors Are Cheering the BOJ Rate Hike
This is
the second time that the BOJ will be seen to have increased its benchmark
interest rate since it moved out from negative territory last year, by doing so
with only 0.75 basis points (bps). Although the increased cost of borrowing is
usually bearish for equities, traders took it as an expression of faith in
Japan’s economic strength.
“If Japan
can increase rates and still have its stock market performing at record levels,
then it means that there is indeed an ongoing recovery,” commented a strategist
based in Tokyo. “This is not the same Japan we experienced during the ‘Lost
Decade’ or early 2000s.”
Financials,
exporters and industrials were at the forefront with rising rates propping up
bank earnings while a softer yen rendered Japanese products more competitive
internationally. During trading hours, there were significant increases in
share prices of major companies such as Toyota, Sony and Mitsubishi UFJ Financial
Group.
A
Rebalanced Economy and Global Momentum
Japan has
witnessed an economic renaissance characterized by steady wages, controlled
inflation rates and increased foreign capital investment. As global investors
look for alternatives outside China, they prefer putting their money in
Japanese markets through institutional funds.
On the
other hand, it stated that any future increases in interest rates would be slow
so as to strike a balance between fighting off inflation and promoting
expansion. The central bank’s message served to reassure investors that Japan
was still moving forward with its recovery from deflation.
Looking
Ahead
Despite
optimism expressed by economists, there are concerns over continuous inflation
as well as fluctuations in currency values. Nevertheless, this historic surge
sends a strong message worldwide that Japan’s economy, which has been sluggish
for a long time, is now back on track.