Nikkei 225 Rises 0.3% on Metal Sector Surge, Bank of Japan Weighs Rate Hike

The Nikkei 225 index closed at 45,754.93 points, marking a 0.3% increase. This rise was driven by a surge in buying interest in the metal sector. Meanwhile, the Kospi index in South Korea closed at 3,471.11 points, down 1.03 points, indicating a slight decline.

The Bank of Japan released the minutes from its policy meeting held on July 30-31. One policy member emphasized that the central bank should not be overly cautious, risking missing the opportunity to raise interest rates. Another member suggested that the bank could potentially exit its observation phase by the end of 2025. This member also noted that it would take at least two to three months to assess the impact of U.S. tariffs. Another policy member highlighted the importance of timely interest rate hikes, as rapid increases later could significantly harm the economy. If inflation remains above 2% for an extended period, adjusting the monetary easing policy would be appropriate. However, under baseline conditions, inflation is expected to temporarily ease, and the central bank should carefully consider whether to raise interest rates. Factors such as the optimal size of the current account surplus and the overall balance sheet should be taken into account to prevent issues in guiding policy rates. During the July meeting, the Bank of Japan maintained its policy unchanged while raising inflation expectations. Two policy committee members advocated for an interest rate hike and voted against keeping the rate unchanged.

Japanese 40-year bonds saw an increase in price, following a successful auction that alleviated concerns about political uncertainty surrounding long-term bonds. The bid-to-cover ratio, which measures demand, was 2.60, compared to 2.127 in the previous auction and a 12-month average of 2.47. After the auction results were announced, the yield on 40-year bonds decreased by 7 basis points to 3.31%. Earlier this month, Prime Minister Fumio Kishida announced his resignation plan, sparking market speculation about his successor and the potential policy implications. Additionally, the Ministry of Finance proposed a second reduction in long-term bond issuance for the year, aiming to stabilize bond market volatility. The results were described as robust, contributing to a flattening of the yield curve.

According to a former member of the Bank of Japan's Policy Board, the central bank could raise its benchmark interest rate as early as next month, aligning with market speculation about imminent action. The decision will largely depend on the extent to which authorities seek to address economic data, which may be stronger due to delayed tariff impacts. With inflation remaining stable, the economy has shown resilience despite the global economic impact of U.S. trade policies. Market expectations for an interest rate hike by the Bank of Japan during its next policy meeting on October 30 have been growing. However, given the high level of uncertainty, there is also a possibility that officials may wait until December to gain more confidence in the tariff impacts.