Nikkei 225 Surges Amid Robust Bond Demand and Anticipated BOJ Rate Hike

On December 4, 2025, Japan's Nikkei 225 Index surged by 2.33%, closing at 51,028 points. This notable uptick was primarily driven by robust demand in a 30-year Japanese Government Bond (JGB) auction and growing expectations of an imminent interest rate hike by the Bank of Japan (BOJ).

The 30-year JGB auction attracted the highest demand in over six years. Prior to the auction, the 30-year JGB yield had reached a record 3.445%. The strong demand led to a post-auction yield decrease to 3.385%. Analysts suggest that the high yields attracted investors betting that interest rate levels may have peaked.

In the equity markets, the industrial robotics sector experienced significant gains. Fanuc Corp, a leading industrial robot manufacturer, saw its stock price increase by 13% following the announcement of a partnership with Nvidia to develop advanced industrial robots. Other robotics firms, including Yaskawa Electric and Nabtesco, also posted strong gains of 11.4% and 11.3%, respectively. Major technology companies contributed to the market's upward momentum, with SoftBank Group's shares rising by 9.2%, Lasertec by 6.2%, and Disco Corp by 2.3%.

The BOJ is anticipated to raise its policy interest rate from 0.5% to 0.75% in December 2025, marking its first hike since January 2025. BOJ Governor Kazuo Ueda indicated that the bank would consider the "pros and cons" of raising interest rates at its next policy meeting, signaling a strong possibility of a hike.

Japan's economy contracted more than initially estimated in Q3 2025, shrinking at an annualized rate of 2.3%, primarily due to a downward revision in capital expenditure. Despite this contraction, economists expect a rebound in the next quarter, minimizing the impact on the BOJ's monetary policy decisions.

The strong demand in the JGB auction and the stock market rally reflect renewed investor confidence in Japan's economic prospects. Companies like Fanuc are leveraging strategic partnerships to enhance technological capabilities, positioning themselves favorably in the global market. The anticipated BOJ rate hike indicates a shift towards monetary policy normalization, which could influence borrowing costs and investment decisions.

The expected rate hike would be the first since January 2025, when the BOJ raised the policy rate to 0.5%, marking the first increase in 17 years. The current economic indicators and market responses suggest a continued trajectory towards policy normalization.

The interplay between robust bond demand and expectations of monetary policy tightening has created a favorable environment for Japanese equities. As the BOJ prepares for potential rate adjustments, market participants will closely monitor economic indicators and corporate strategies to gauge the sustainability of this upward trend.