After the Bank of Japan raised interest rates, Japanese bank stocks surged, Japanese bond yields hit a 15-year high, and the yen rose above 151

Boosted by the Bank of Japan's interest rate hike announced on Wednesday, Japanese bank stocks saw a strong rally, with Japanese bond yields also climbing to a 15-year high.

This interest rate hike is the Bank of Japan's second rate hike since 2007, raising the key interest rate target from near zero to 0.25%. In addition, the Bank of Japan also announced a quarterly reduction of ¥400 billion in government bond purchases, with monthly bond purchases expected to halve by the first quarter of 2026.

Following the announcement, short-term Japanese government bond yields rose rapidly, with the two-year bond yield rising by 8 basis points to 0.45%, the highest level since April 2009. The five-year bond yield also increased by 8 basis points to 0.665%, reaching a new high since November 2009.

Meanwhile, the ten-year bond yield rose by 6 basis points to 1.06%, slightly below the 13-year high of 1.1% touched three times in the past two months, with an increase of 1.048% as of the time of writing.

Analysts believe that higher interest rates are expected to increase loan profitability and investment returns, making bank stocks the biggest beneficiaries of the Bank of Japan's policy decisions.

The Tokyo Stock Exchange's banking sector index surged by 4.7%, with bank stocks soaring.

In the Nikkei index, Resona Holdings led the banking stocks with a 6.7% increase, while Mizuho Financial Group and Sumitomo Mitsui Financial Group rose by 5.1% and 4.5% respectively.

The Nikkei 225 index rallied in the final trading session, breaking through the 39,000-point mark again, reversing an earlier decline of up to 1.5%, and ultimately closing with a 1.5% gain at 39,101.82 points.

The TOPIX index closed up by 1.5%. The value stock classification index rose by 1.7%, outperforming the growth stock index's 1.2% increase In addition, the Japanese yen fluctuated against the US dollar after the policy announcement, eventually stabilizing at around 152 yen to 1 US dollar, and export stocks also rebounded.

The Morgan Stanley team previously stated that as of July 25, banks attracted a net stock purchase of approximately 472 billion yen over the past year. This is more than twice the amount of funds flowing into the automotive and parts industry, which also performed the best. Most car manufacturers reversed their early declines and closed higher.

Meanwhile, following media reports that some Japanese companies will be exempt from US export restrictions, chip industry stocks turned from earlier declines to strong gains. Tokyo Electronics' stock price once expanded by 12%, marking the largest intraday increase since February, and closed up by 7.41%.

Naka Matsuzawa, Chief Macro Strategist at Nomura Securities, stated:

"Given that today's decision is only four months away from the first rate hike, the market should consider the Bank of Japan to be more hawkish than it imagined... The faster-than-expected rate hike suggests that the Bank of Japan wants to push up short-term yields."