Japanese stocks experienced a notable rally on Wednesday, with the Nikkei 225 Stock Average climbing by over 3% as the yen’s recent strengthening trend eased.
This pause in the yen’s upward movement provided a boost to exporters, particularly in the technology and automotive sectors.
The Nikkei 225 surged by as much as 3.5% to 32,810 points by 10:56 a.m. in Tokyo. The broader Topix Index also saw a significant increase, rising by 2.9%.
Hitachi Ltd. was a major contributor to this upward momentum, with its shares gaining 4.7%. This growth was driven by the yen’s decline to 142.95 against the US dollar, which eased the pressure on Japanese exporters.
Source: TradingView
Easing yen concerns boost technology and automaker stocks
The recent strengthening of the yen had been a major concern for Japanese exporters, particularly technology companies and automakers, as it made their products more expensive abroad.
However, with the yen weakening, these sectors saw a rebound.
“The concern over a stronger yen has eased as the market adjusted its expectations for a US rate cut to 25 basis points,” noted Ikuo Mitsui, a fund manager at Aizawa Securities.
Mitsui attributed the market’s positive movement to a recovery in chip-related stocks, which had previously been sold off due to the strong yen.
The rebound in the Japanese market was timely, as the relative strength index for both the Nikkei 225 and Topix Index had been nearing oversold territory, with readings approaching 30.
The Topix Index had been in a downward trend for six consecutive days, marking the longest losing streak in a year.
US inflation data impacts rate cut expectations
The recent pick-up in US inflation for August played a role in altering expectations for future Federal Reserve actions.
The unexpected inflation data reduced the likelihood of a substantial rate cut at the Federal Reserve’s upcoming meeting, affecting market sentiment.
Despite the recent gains, investors remain cautious and are closely monitoring comments from central bank officials.
Bank of Japan policy board member Naoki Tamura indicated that the central bank might need to raise its benchmark rate to at least 1% by the end of the current projection period.
This potential shift in policy could influence future market movements.
Central bank commentary and market outlook
On Wednesday, another Bank of Japan board member, Junko Nakagawa, stated that the central bank would continue to adjust its policy as long as the economy performs in line with projections.
Her comments contributed to a brief strengthening of the yen, underscoring the ongoing volatility in currency markets.
Out of the 2,132 stocks in the Topix Index, 1,955 saw gains, 127 declined, and 50 remained unchanged.
This broad-based advance reflects the overall positive sentiment in the market following the yen’s recent weakening and easing concerns over its impact on Japanese exporters.
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