Nikkei Rallies as BOJ Rate Hike Weakens Yen and Lifts AI Shares

Tokyo stocks experienced a sharp rally on September 18 as the Bank of Japan raised interest rates to 1.25%. The Nikkei 225 climbed to around 65,350 in afternoon trading, buoyed by a weaker yen and buying of AI and semiconductor-related shares. The decision to increase the policy rate from 1% to 1.25% was widely anticipated, but the market reacted positively after two board members dissented, indicating a less hawkish tone than expected.

The weaker yen, which dropped to approximately 157 per dollar, supported exporters and contributed to the Nikkei's gain. The index saw a rise of over 1,200 points by early afternoon, with AI and semiconductor shares leading the rally. Advantest, Tokyo Electron, SoftBank Group, Ibiden, and Kioxia Holdings were among the major positive contributors.

The return of buying in these names marked a significant shift from earlier in the week, when AI-company leaders had expressed safety concerns about the potential need to slow AI development. The BOJ's 7-2 vote to raise rates also played a crucial role, as the split decision reduced expectations for aggressive tightening, leading to a weaker yen and a more favorable environment for growth and semiconductor shares.