Japanese Stocks, Yen Swing After BOJ Rate Hike: Markets Wrap

(Bloomberg) — Japanese stocks trimmed losses and the yen fluctuated as traders digested the Bank of Japan’s interest-rate increase and reduction in bond purchases.

Most Read from Bloomberg

The BOJ raised rates to around 0.25%, flagged as a possibility in a report by broadcaster NHK, and said it would reduce its monthly pace of bond buying to around ¥3 trillion ($19.6 billion) in the first quarter of 2026. Analysts had expected a more aggressive reduction. The Nikkei 225 index was little changed while the yen swung between gains and losses.

The decision will send ripples across global financial markets given the yen’s status as a major carry trade currency. As traders await BOJ Governor Kazuo Ueda to offer details, the rest of Asia is seeing big moves given a slew of economic data, key earnings, and positioning ahead of the Federal Reserve’s decision.

The Australian dollar fell and short-term bonds rallied after core inflation unexpectedly decelerated last quarter, prompting traders to boost bets on an interest-rate cut by the Reserve Bank. Chinese stocks jumped as anticipation grew for Beijing to enhance support for its struggling economy. US equity futures advanced with expectations that Chair Jerome Powell may signal a potential rate cut in September.

“The fall in AUD makes perfect sense — the market will now think the RBA can indeed converge closer to peers on the policy rate side,” said Tim Baker, strategist at Deutsche Bank.

Yields on Australia’s policy sensitive three-year government bonds declined as much as 25 basis points.

South Korea’s Kospi Index climbed, buoyed by gains in Samsung Electronics Co. after the chipmaker reported its fastest pace of profit growth since 2010. Shares in mainland China and Hong Kong rallied as more signs of slowing growth spurred bet on stronger support measures from Beijing.

Treasury yields stabilized after falling in the previous four sessions. A Bloomberg gauge of dollar strength edged lower.

In commodities, oil rose for the first time in four sessions after Hamas said Israel killed its political leader and an industry report pointed to a fifth week of drawdowns in US stockpiles.

Overnight in the US, the world’s largest technology companies extended losses in US late hours as Microsoft Corp.’s results fueled concern the artificial-intelligence frenzy might have gone too far. A rotation out of big tech has dragged the Nasdaq 100 down 9% from its all-time high — leaving it on the cusp of a correction.

The S&P 500 fell to around 5,435 on Tuesday. The Nasdaq 100 slid 1.4%. A gauge of the “Magnificent Seven” megacaps sank 2%. The Russell 2000 of small firms rose 0.3%. Nvidia Corp. tumbled 7%, wiping $193 billion from its market value.

If the Fed is about to begin a rate cutting cycle, stock bulls have history on their side. In the six prior hiking cycles, the S&P 500 has risen an average 5% a year after the first cut, according to calculations by the financial research firm CFRA. What’s more, the gains also broadened, with the small-cap Russell 2000 Index climbing 3.2% 12 months later, the data show.

Key events this week: