Asia report: Markets rally as BoJ hikes interest rates

Asia-Pacific markets experienced a robust rally on Wednesday, with significant gains across major indices as investors reacted to central bank decisions and economic data from China.

The Bank of Japan surprised a number of market participants with a hike in its benchmark interest rate, taking it to its highest level in over 15 years.

“Japanese stocks rebounded and the yen fluctuated as traders absorbed the Bank of Japan’s interest rate hike and slowdown in bond purchases,” said TickMill market analyst Patrick Munnelly.

“The BoJ raised interest rates to around 0.25% and announced a reduction in bond purchases to about JPY 3trn per month in the first quarter of 2026.”

Munnelly said Japanese government bonds pared losses, with analysts having expected a more aggressive cut.

“The Nikkei 225 index advanced 0.2%, while the yen alternated between gains and losses.”

Stock markets a sea of green across the Asia-Pacific

Japan's Nikkei 225 led the region with a 1.49% increase, closing at 39,101.82, after the Bank of Japan raised its benchmark interest rate above 0.1% for the first time since December 2008.

That decision spurred investor optimism, benefiting key stocks such as Dainippon Screen Manufacturing, Tokyo Electron, and Resona Holdings, which surged 9.19%, 7.41%, and 6.69% respectively.

In China, the Shanghai Composite and Shenzhen Component rose 2.06% and 3.37%, closing at 2,938.75 and 8,754.09.

Gains were driven by strong performances in technology sectors, with Traffic Control Technology soaring 13.59%, and Inmyshow Digital Technology Group and Cashway Technology both up 10.09%.

Hong Kong’s Hang Seng Index climbed 2.01% to 17,344.60, buoyed by a rally in biotech and renewable energy stocks.

WuXi Biologics surged 9.71%, while WuXi AppTec and Xinyi Solar saw gains of 7.37% and 6% respectively.

South Korea’s Kospi also saw a positive movement, rising 1.19% to 2,770.69.

Among the leading gains were SK Square, Kogas, and Posco International, which increased by 4.99%, 4.95%, and 4.74% respectively.

Australia's S&P/ASX 200 reached an all-time closing high, rising 1.75% to 8,092.30.

The market was led by real estate and mining stocks, with Charter Hall Group up 6.91%, Coronado Global Resources ahead 6.27%, and Nickel Industries advancing 6.21%.

In New Zealand, the S&P/NZX 50 saw modest gains, rising 0.11% to 12,405.27, with Investore Property, Freightways, and Scales Corporation each posting gains of over 3.5%.

In currency markets, the dollar was last down 1.53% on the yen to trade at JPY 150.43.

The greenback was mixed against its antipodean counterparts, rising 0.61% against the Aussie to AUD 1.5390, while it slipped 0.22% on the Kiwi, last changing hands at AUD 1.6902.

Oil prices continued their upward trend, with Brent crude futures last up 2.35% on ICE at $80.48 per barrel, and the NYMEX quote for West Texas Intermediate gaining 2.69% to $76.74.

Bank of Japan hikes interest rates, inflation remains stable in Australia

At the top of the economic agenda on Wednesday was Japan's central bank, which raised its benchmark interest rate to around 0.25%, surprising many economists who had expected the rate to remain in the 0% to 0.1% range.

It marked the first time since December 2008 that Japan's interest rate had exceeded 0.1%, signalling a shift in the country's monetary policy amidst ongoing economic challenges.

In China, factory activity continued to decline in July, with the official manufacturing purchasing managers’ index (PMI) slipping to 49.4 from 49.5 in June, indicating a slightly faster contraction.

Despite the decline, the PMI figure still surpassed expectations, as a Reuters poll had anticipated a drop to 49.3.

The data reflected ongoing struggles in China’s manufacturing sector, which had faced persistent headwinds in recent months.

Meanwhile, Australia’s inflation rate for the second quarter rose by 1% compared to the prior quarter, with a year-on-year increase of 3.8%.

That matched June's inflation rate, which also stood at 3.8%, showing a slight deceleration from May's 4%.

The moderation in inflation could prompt the Reserve Bank of Australia to reconsider its approach to monetary policy, potentially delaying further rate hikes or even considering rate cuts in the future.

Reporting by Josh White for Sharecast.com.