Japanese shares tread water as investors weigh yen surge, BOJ hike

Japanese shares remained relatively stagnant on Tuesday as investors evaluated positive domestic data against a stronger yen and anticipated Bank of Japan interest rate hikes. The Nikkei 225 index rose 0.31% to 66,608.42, while the Topix fell 0.51% to 4,104.89. With US markets closed for a holiday on Monday, domestic data took center stage.

Revised gross domestic product figures for the second quarter indicated a faster expansion than initially reported. Additionally, real wages grew by 2.4% in July compared to the previous year, marking the largest increase since May 2021. The anticipation of a possible Bank of Japan rate hike next week has led markets to price in a near certainty of a rate increase.

The Japanese yen continued its upward trend, trading at 153.37 per dollar, the highest level since February. Nomura Securities' equities strategist, Maki Sawada, anticipated subdued trading due to the expectations of a Bank of Japan rate hike and the strengthening of the yen. Oil and coal product shares experienced the most significant gains among Topix industry groups, up 1.54%, while sectors associated with transportation equipment and rubber manufacturers lagged, down 2.51% and 2%, respectively.

The breadth of the Nikkei was negative, with 57 stocks advancing against 163 declining and 5 remaining unchanged. Notable losers included Taiyo Yuden, which dropped 4.90%, Mercari with a decline of 4.77%, and JTEKT, falling 4.66%. SoftBank Group emerged as the top gainer, rising 6.24%, followed by Nitori Holdings with a gain of 4.54% and Denka up 2.65%.