The “Rate Hikes = Stock Market Declines” Rule Does Not Apply to Japanese Stocks: The “Clear Reason”

Beginning with reports of the breach of the embankment around Lake Imba in Chiba Prefecture, commentators have also pointed out that the difference in the nature of rate hikes is important for the market. Lake Imba has a two-way drainage system and had not experienced major flooding for many years, but the assumption underlying that record is said to have broken down in the latest torrential rains. In the market as well, emphasis has been placed on the fact that US and Japanese rate hikes are not of the same nature, and this is regarded as one factor supporting a year-end rally.

The view has been expressed that “the US rate-hike cycle is entering its final phase, with one additional hike remaining as the base-case scenario,” and it has been reported that the final hike of the year is expected to bring the cycle to an end. This could lead the equity market to interpret the move not as a “bad rate hike” but as a step closer to normalisation.

“Japan’s rate hikes are part of the process of monetary policy normalisation. They are not an emergency brake, and a gradual pace is expected to be maintained, making yen appreciation less likely.” The Bank of Japan is expected to raise its policy rate to 1.50% this year, with room for further hikes remaining in 2027.

As support from supply-demand conditions and the consumption environment, the money stock was reportedly at a record ¥2,342 trillion as of August, while corporate share buybacks are said to be at a record annual level of approximately ¥16 trillion. Seasonal factors, including dividend reinvestment and window dressing purchases, are also expected to support the Nikkei Average toward year-end.

Assuming no sharp exchange-rate fluctuations, limited yen appreciation is expected to support corporate earnings, and the Nikkei Average’s EPS forecast is reportedly expected to remain at ¥4,000.