Japan’s stocks rise after rate hike

Japanese stocks rallied and the yen fell today, despite the Bank of Japan’s first interest rate increase since July.

The Nikkei-225 stock index was up 1% to 18,087.84 at midday, after topping 18,000 for the first time in nearly seven years.

The yen slid to 120.88 per dollar in New York on Wednesday from 120.22 on Tuesday. Today in Tokyo, the yen fell to 121.01.

Analysts said markets were betting that policymakers would take a long time to meaningfully lift rates.

Bank of Japan Gov. Toshihiko Fukui said as much when he told parliament today that the central bank aimed to “maintain an accommodative monetary environment by holding interest rates as low as possible to support economic growth.”

He said the plan was to raise rates “gradually” but also to high enough levels over time so that policymakers could regain their ability to influence the economy with monetary policy.

The Bank of Japan on Wednesday raised its key short-term rate from 0.25% to 0.5%. It was the first increase since the rate was lifted from zero to 0.25% in July. An improving Japanese economy persuaded policymakers that it was time to act.

Japan still has the lowest rates by far in the industrialized world. The Bank of Japan’s key rate compares with the Federal Reserve’s benchmark of 5.25% and the European Central Bank’s rate of 3.5%.

A weak yen and low interest rates could encourage global speculators to continue borrowing in Japan to buy investments elsewhere. That practice has been a boon to many speculators for years.