Nikkei 225 Edges Higher As Oil Rally Cools, But Strong Yen Weighs On Exporters In Tokyo Ahead Of BOJ Decision

TOKYO — Japan's Nikkei 225 climbed 128.17 points, or 0.20%, to close at 65,270.95 on Thursday, recovering modestly as the recent surge in oil prices and global bond yields lost some momentum, even as a strengthening yen continued weighing on the outlook for the country's export-heavy companies.

The rebound followed a difficult stretch for Japanese equities, with the Nikkei having fallen as much as 4.43% over the preceding month, according to Trading Economics, as elevated oil prices and rising global bond yields fueled persistent inflation concerns across Asian markets. Despite the recent pullback, the index remains up 45.44% compared with a year earlier, reflecting the substantial longer-term rally Japanese stocks have experienced.

Technology and banking stocks led Thursday's recovery. Kioxia Holdings gained 1.9%, Advantest rose 3.3%, Taiyo Yuden climbed 4.8%, Mitsubishi UFJ added 1.7% and Sumitomo Mitsui gained 1.5%, according to Trading Economics, as easing pressure from oil and bond markets gave investors room to move back into some of the index's higher-beta names.

Despite Thursday's gains, the Bank of Japan remains widely expected to raise interest rates at its policy meeting next week. BOJ board member Kazuyuki Masu indicated the central bank intends to continue tightening monetary policy and scaling back its accommodative stance as underlying inflation moves closer to the bank's 2% target, a signal that has kept Japanese rate expectations firmly in focus for investors positioning ahead of the decision.

Adding to the complexity facing Japanese markets, the yen climbed to its strongest level in nearly seven months during the session, according to Trading Economics. A stronger yen tends to weigh on the earnings outlook for Japan's major export-oriented companies, since it makes their goods relatively more expensive for foreign buyers and reduces the yen-converted value of overseas revenue, a dynamic that has added a layer of caution to Thursday's otherwise modestly positive session.

Thursday's gain followed a choppy stretch earlier in the week. The Nikkei 225 fell 170 points, or 0.26%, to close at 64,973 on Wednesday, with declines led by Mitsui Kinzoku, down 6.18%, Japan Steel Works, down 6.04%, and Nintendo, down 5.32%, even as Sharp Corp, Taiyo Yuden and T&D Holdings posted gains that day. That decline had itself followed a steeper drop, with the index falling 1% to below 64,600 and the broader Topix index sliding 0.65% to 4,020, extending losses for a third consecutive session at the time as elevated oil prices fueled inflation concerns and heightened expectations for near-term rate hikes.

The broader volatility in Japanese markets this week traced back in significant part to the escalating conflict between the United States and Iran. Oil prices had climbed sharply following the weekend exchange of strikes involving tankers and warships around the Strait of Hormuz, with Brent crude rising to around $97.24 a barrel earlier in the week before continuing higher toward the $100 threshold as tensions continued to build. That sustained rise in energy prices has fed directly into inflation concerns across Asian markets, complicating central bank policy decisions from Tokyo to Sydney.

Earlier in the week, Japanese markets had shown notably stronger performance, with the Nikkei 225 closing 2.12% higher at 66,399.84 on Sept. 5, supported by broad gains across technology stocks tied to enthusiasm around artificial intelligence infrastructure spending. SoftBank advanced 11.22% during that session, while Advantest added 4.20%, contributing significantly to the index's gains at the time. South Korea's Kospi similarly surged 4.61% that same day, with Samsung and SK Hynix, the index's two heavyweight constituents, rising 5.68% and 8.26%, respectively.

That earlier rally proved short-lived as the week progressed, with Middle East tensions and rising global bond yields eventually overtaking the AI-driven optimism that had briefly lifted regional markets. The Nikkei had touched an intraday high near 66,525 earlier in the week before reversing sharply lower as oil prices continued climbing and yields moved higher across major global bond markets.

Analysts at Bernstein have separately warned that rising U.S. bond yields could pose an underappreciated risk to Asian equities more broadly, suggesting current valuations across the region may not fully reflect the potential drag from sustained higher borrowing costs globally, a concern that has continued to weigh on sentiment across Japanese and other regional markets even during Thursday's modest recovery session.

The Nikkei 225, which has served as Japan's benchmark stock index since its founding in 1950, tracks 225 major companies listed on the Tokyo Stock Exchange using a price-weighted methodology. The index has been updated every five seconds during trading sessions since July 2017, and remains one of the most closely watched barometers of Japanese economic and market sentiment globally, alongside the broader Topix index, which tracks a wider basket of Tokyo-listed companies.

With the Bank of Japan's policy decision now just days away, and the broader conflict between the United States and Iran continuing to drive volatility in global oil markets, investors are likely to remain focused in the coming sessions on how those two factors interact to shape the direction of both Japanese equities and the yen. A confirmed BOJ rate hike next week, combined with continued strength in the yen, could add further pressure to Japan's export-dependent companies even as the broader market attempts to stabilize following its recent pullback from record highs earlier this year.