Japanese Stocks Surge to Record Amid BOJ Rate Hike Speculation

Japanese equities surged to a record high for the third time this week, driven by a stronger-than-expected GDP growth and renewed speculation of a Bank of Japan rate hike. The Topix Index rose 1.6% to 3,107.68, while the Nikkei climbed 1.7%. Banks and megacaps led the gains, with SoftBank Group vaulting 6.4%. Foreign investors showed renewed interest in large caps, with the Topix Core 30 index jumping 2.6%.

Japanese equities surged to a record high for the third time this week, driven by a stronger-than-expected GDP growth and renewed speculation of a Bank of Japan (BOJ) rate hike. The Topix Index rose 1.6% to 3,107.68, while the Nikkei climbed 1.7%. Banks and megacaps led the gains, with SoftBank Group vaulting 6.4%. Foreign investors showed renewed interest in large caps, with the Topix Core 30 index jumping 2.6%.

The economic expansion in Japan was led by solid domestic demand, with GDP growing at an annualized pace of 1% in the three months through June, surpassing economists’ forecast of a 0.4% gain [1]. Business investment rose 1.3%, and private consumption nudged 0.2% higher. The resilience of the economy amidst US tariffs boosted the case for the BOJ to raise its benchmark rate again this year.

The BOJ is expected to hold steady when it next sets policy on September 19, but some economists anticipate a move in October. Governor Kazuo Ueda said last month that authorities will keep raising borrowing costs if they’re confident domestic demand can stay steady [1]. The market consensus also seems to be shifting toward an earlier hike now.

The yen strengthened about 0.5% to 146.95 against the dollar this week and the 10-year Japanese government bond yield rose 7.5 basis points to 1.56%. The comments by US Treasury Secretary Scott Bessent that Japan has been behind the curve in taming inflation helped to stoke speculation of an early rate increase by the BOJ [2].

Foreign investors were ramping up interest in large caps, with the Topix Core 30 index of the country’s largest caps jumping 2.6% Friday while the Topix Small index eked out gains of 0.2%. Despite the hefty rise in the Topix, the number of advancing shares was unusually low, suggesting that foreign investors were focusing on large caps [3].

The recent economic data and comments from US officials have created a more optimistic outlook for the Japanese economy and its equities market. However, investors should continue to monitor developments and the potential impact of persistent inflation and global trade headwinds.

References:
[1] https://finance.yahoo.com/news/japan-growth-beats-forecasts-boosting-014202433.html
[2] https://www.investing.com/news/economy-news/finance-minister-says-japan-must-watch-economic-backdrop-to-calls-for-boj-rate-hike-4194497
[3] https://www.bloomberg.com/news/articles/2025-08-15/topix-scales-record-high-as-large-caps-drive-gains-on-robust-gdp