Nikkei 225: BoJ, Fed, Oil and Yields to Drive Trading

The Nikkei 225 was trading around 64,000, roughly 12% below its high for the year, as market participants prepared for two central bank decisions this week. The Bank of Japan will announce its policy decision on Friday, shortly after the statistics agency publishes August inflation data. Economists expect national core inflation of about 1.8% and core consumer prices near 2.1% for August. Markets are pricing a 25-basis-point BoJ increase to roughly 1.25%, a level not seen in more than 30 years.

The Federal Reserve will announce its decision on Wednesday. Recent U.S. data showed payrolls rose by more than 162,000 and inflation readings remain above the Fed’s 2% target. Analysts expect a 25-basis-point Fed increase that would place the federal funds rate in the 3.75%–4% range. A wider U.S.-Japan rate gap could keep the yen weak and maintain its role as a funding currency for carry trades.

A weaker yen tends to help exporters by boosting overseas earnings when converted to yen. Higher global yields, however, can put pressure on equity valuations across sectors. Market pricing indicates the BoJ increase is largely anticipated, which may limit immediate market reaction to Friday’s decision.

Geopolitical developments in the Middle East added volatility to markets. Recent attacks involving U.S. forces, Iran-aligned groups and allied militias have disrupted shipping routes and pushed crude prices higher. Brent crude traded near $107 a barrel and West Texas Intermediate around $100. Japan imports most of its crude oil, so higher oil costs raise production and distribution expenses for companies and can feed into consumer inflation, affecting corporate margins and household spending.

Japan’s government bond market has seen yields rise. The 10-year Japanese government bond yield reached about 2.98%, the highest level in decades. Higher long-term yields can make bonds more attractive relative to equities and increase borrowing costs for companies that rely on debt financing.

Demand for hardware used in artificial intelligence applications has pushed up prices for key electronic goods, including some smartphones and gaming consoles, and supported revenue gains for certain chipmakers and device manufacturers. Rapid investment in AI has sparked debate among policymakers and industry observers about the pace of rollout and whether regulation or valuation adjustments will follow. Those discussions could prompt some investors to adjust exposure to technology-related stocks on the Nikkei.

Traders and fund managers said they would monitor the August inflation release, the BoJ and Fed policy statements, and other economic data for guidance on corporate profits, currency movements and sector performance.