Nikkei falls over 3% as Yen strengthens post-BOJ rate hike

Nikkei tumbles: Japan’s Nikkei share average dropped more than 3 per cent in morning trading on Thursday, driven by further appreciation of the yen and declines among key index components, following the Bank of Japan's (BOJ) landmark monetary policy meeting the previous day.

On Wednesday, the BOJ raised interest rates to their highest level in 15 years and revealed plans to scale back its extensive bond purchasing programme. Despite this, market reactions suggest that the rate hike was not perceived as excessively hawkish, according to David Chao, Global Market Strategist for Asia Pacific (excluding Japan) at Invesco. Chao noted that the policy uncertainty overhang appears to have been alleviated.

The yen's strength, bolstered by the BOJ's decision, led to a nearly 1 per cent decline in the dollar against the Japanese currency during early trading hours on Thursday. This currency movement placed downward pressure on the Nikkei index, which briefly fell over 3 per cent to reach a one-week low.

By midday, the Nikkei 225 index was down 2.58 per cent at 38,094.24, while the broader Topix index dropped 3.12 per cent to 2,707.07.

Export-oriented stocks, which typically suffer when the yen strengthens as it impacts repatriated revenues, experienced significant losses. Automakers, in particular, underperformed, with Toyota Motor falling 5.3 per cent after an earlier drop of 7 per cent. The transport equipment sector also saw a decline of 5.1 per cent.

Other major companies were not spared; shares of Fast Retailing, the parent company of Uniqlo, and Sony Group Corp both fell approximately 3 per cent.

The yen’s rise from 38-year lows of 161.96 at the start of July to around 149.635 has intensified pressure on Japanese equities. Analysts at UBS SuMi TRUST Wealth Management have indicated that Japanese stocks are likely to remain volatile until the USD/JPY exchange rate stabilises.

(With Reuters inputs)