Source: Glonui.

On Tuesday, the nikkei 225 index rallied and hit a three-month high.

As of the close, $Nikkei 225 Index (.NKY.US)$ Closing up by 0.77% at 39910.55 points, once again reclaiming the 40,000-point mark intraday, marking the first breakthrough since July 19th. The TOPIX index$TOPIX (.TOPIX.JP)$ Closing up 0.75% at 2726.54 points.

The US dollar fell against the Japanese yen, now down 0.35% at 149.24.

Japanese stocks are once again regrouping, influenced by several factors.

Yesterday, the Japanese stock market was closed due to a holiday. However, driven by the strong performance of the US stock market overnight, Japanese stocks are strengthening in the Asia-Pacific markets today.

On the other hand, the outlook of Japan's comprehensive economic package is also boosting sentiment.

On Tuesday, Kyodo News reported that Japanese Prime Minister Shizo Abe stated that the Japanese government plans to compile a supplementary budget for this fiscal year, with an expected amount exceeding last year's 13.1 trillion yen (87.6 billion US dollars)..

This additional budget will be used to support an economic stimulus package to alleviate the impact of rising living costs on families.

Earlier this month, Shinzo Abe requested the cabinet to formulate a new economic stimulus package in his inaugural speech to overcome deflation.

At the same time, he also tried to dispel intervention in the central bank, stating that the specific monetary policy is decided by the Bank of Japan.

According to the latest survey by Reuters, the Bank of Japan is expected to maintain interest rates until the end of the year.

In a survey of economists from the Bank of Japan, 25 out of 49 economists (51%) expect the Bank of Japan to keep interest rates unchanged before the end of the year. In the previous survey in September, 46% of economists expected rates to remain unchanged.

However, 87% of economists still expect the Bank of Japan to raise rates by 25 basis points before the end of March 2025.

Against the backdrop of a global interest rate cut trend and the uncertainty of Japan's new leadership economic policies, the Bank of Japan has taken a cautious stance in the complex process of policy normalization.

Currently, the expected easing of the Fed's policy and the anticipation of a 25 basis point rate cut in November have kept US Treasury yields high.

This has helped the US dollar stabilize near its two-month high and limited the yen's appreciation.

In addition, the timing of the Bank of Japan's next steps depends on several factors, including the results of the House of Representatives elections and the preparation of the next fiscal year's budget.

Marilwashita, Chief Market Economist at Nomura Securities, stated that it is unlikely for the Bank of Japan to raise rates again before the House of Representatives elections and the preparation of the next fiscal year's budget by the end of December.

"Next year, the momentum of wage increases has also strengthened. If the US economy continues to show resilience, we believe that by January when the Bank of Japan releases its quarterly outlook report, the conditions for raising interest rates will be met."

He also mentioned that the Bank of Japan may postpone the decision until March to assess the policies of the new US government and the results of the annual wage negotiations.

In March of this year, the Bank of Japan ended its negative interest rate policy and raised short-term borrowing costs to 0.25% in July.

In terms of the pricing in the OIS market, traders believe that there is about a 94% chance that the Bank of Japan will not raise interest rates in October. Looking ahead to December, only an increase of about 8 basis points is currently priced in.

Regarding the Japanese stock market and the yen, Tianfeng Securities' Song Xuetao pointed out that despite nearly six months since Japan said goodbye to negative interest rates, investors in the Japanese stock market are still "watching the yen for the Nikkei".

Until the "Ishiba route" becomes clear, the high volatility of the yen and the subsequent high volatility of Japanese stocks will continue. The yen remains one of the most important financing and hedging currencies in the world.

The high volatility of the yen is like the 'Sword of Damocles' hanging over the global capital markets.

Editor / jayden