Japan stocks are in a strong uptrend, with the Nikkei 225 and Topix trading at their all-time highs. The Nikkei 225 Index was trading at ¥44,780, up by over 45% from its lowest level this year. Similarly, the Topix Index jumped to ¥3,160. Here are the top catalysts for the index.
Bank of Japan interest rate decision
The Nikkei 225 and Topix indices will react to the upcoming Bank of Japan interest rate decision on Friday. That report will come a few day after the statistics agency publishes the latest consumer inflation data.
Economists expect the data to show that the headline Consumer Price Index (CPI) slowed from 3.1% in July to 2.8% in August. Core inflation, which excludes the volatile food and energy prices, is expected to come in at 2.8%, lower than the previous 3.1%.
Economists expect that the Bank of Japan will leave interest rates unchanged as it continues to support the economy that is facing major challenges from Donald Trump’s tariffs.
While the main interest rate decision will be important, the main driver for the index will be Kazuo Ueda’s speech, which will provide more information on when the bank may hike interest rates. In a note, an analyst told Reuters:
“Ueda probably won’t give clear hints on whether the BOJ could hike in October, as it wants to do more checks on how deep the tariff impact could be.”
Japan bond yields have moved sideways ahead of this interest rate decision. The 10-year yield was trading 1.594%, a few points below the year-to-date high of 1.65%.
Federal Reserve interest rate decision
The other main catalyst for the Nikkei and Topix will come from the United States, where the Federal Reserve will conclude its two-day meeting on Wednesday and deliver its interest rate decision.
The decision comes after the US published mixed economic data recently. On one hand, the labor market has softened, with the unemployment rate rising and the number of payrolls rising by just 22,000 in August.
At the same time, a report by the Bureau of Labor Statistics (BLS) showed that the headline Consumer Price Index (CPI) rose to 2.9%, and the core CPI remained at 3.1%.
A Federal Reserve interest rate cut normally has an impact on American and global indices by incentivizing risk-taking among investors. The risk, however, is whether this cut will be a sell-the-news event.
Top Japanese macro data
The other minor catalysts for the Nikkei 225 and the Topix indices will be some minor economic data from Japan.
The first main data to watch will be the upcoming exports and imports data, which will come out on Wednesday. Economists expect the report to show that Japan’s exports continued to fall because of Donald Trump’s tariffs.
Precisely, economists see exports falling by 1.9% after falling by 2.6% in the previous month. Imports, on the other hand, are expected to drop by 4.2% after falling by 7.2% in the previous month.
The other important data will be machinery orders, which will come out on Thursday this week. Economists expect this report to show that orders rose by 5.4% in July from 7.6% in the previous month.
While these numbers are important, they will be overshadowed by the upcoming Bank of Japan interest rate decision.
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