Japanese Shares Rally and Bond Yields Climb as Bank of Japan Lifts Key Rate to 0.75%

The Bank of Japan (BOJ) raised its short-term policy rate by 25 basis points to 0.75% on Friday, the highest level since 1995. The long-anticipated move, aimed at countering persistent inflation, triggered a broad advance in domestic equities and pushed government bond yields to multi-decade highs.

Japan’s consumer price index has remained above the central bank’s 2% target for almost four consecutive years. Government data released the same day showed headline inflation easing to 2.9% in November, down from 3.3% in October, while core inflation, which excludes fresh food costs, held steady at 3.0%. Economists surveyed by Reuters had expected the same reading.

Following the policy decision, the Nikkei 225 closed 1.03% higher at 49,507.21, and the broader Topix added 0.8% to 3,383.66. In fixed income markets, the 10-year Japanese government bond yield rose more than three basis points to 2.022%, the highest level since 1999. The 20-year yield climbed above 2.96%. At the same time, the yen weakened 0.33% to ¥156.06 against the U.S. dollar.

Market strategists noted that Japan’s Ministry of Finance is closely monitoring currency movements. Should the yen experience sharp depreciation during the low-liquidity year-end period, officials have signaled a readiness to intervene to stabilize exchange rates.

The BOJ’s decision also influenced trading across the wider Asia-Pacific region. South Korea’s Kospi gained 0.65% to 4,020.55 and the tech-focused Kosdaq advanced 1.55% to 915.27. The Bank of Korea confirmed it was conducting “smoothing operations” in foreign-exchange markets, selling U.S. dollars to mitigate one-sided pressure on the won. The South Korean currency recently hovered near ₩1,479 per dollar, around its weakest level since 2009.

Australia’s S&P/ASX 200 edged up 0.39% to 8,621.4. In Greater China, Hong Kong’s Hang Seng Index rose 0.59%, while the CSI 300 on the mainland climbed 0.58%. India’s Nifty 50 added 0.5%. Shares of ICICI Prudential Asset Management Company surged as much as 20% in their Mumbai debut after the firm completed a 106-billion-rupee (US$1.17 billion) initial public offering.

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Overnight in the United States, equity benchmarks reversed a four-session decline. The S&P 500 advanced 0.79% to 6,774.76, the Nasdaq Composite jumped 1.38% to 23,006.36, and the Dow Jones Industrial Average edged up 0.14% to 47,951.85. Softer-than-expected U.S. inflation data for November improved investor expectations for policy easing in 2026, while stronger-than-forecast guidance from semiconductor producer Micron Technology further supported risk appetite.

Analysts said the BOJ’s latest rate increase underscores a global trend toward higher borrowing costs as major central banks respond to stubborn price pressures. For context, the Bank of Japan had maintained near-zero or negative interest rates for most of the past quarter-century, making today’s level a significant shift in its policy stance.

Despite the rise in market yields, Japanese authorities continue to stress that monetary conditions remain accommodative compared with those in other developed economies. Investors are now watching for any adjustments to the BOJ’s asset-purchase programs that could signal further normalization of policy.

Crédito da imagem: Yongyuan | E+ | Getty Images