Yen Strengthens as BOJ Rate Hike Expectations Rise

Japan's stock market remained relatively stable on Tuesday, despite strong economic data and rising yen. Revised numbers showed that Japan's second-quarter growth was stronger than initially reported, with real wages increasing by 2.4% in July from a year earlier - the biggest gain since May 2021.

However, the bigger influence on markets was policy expectations, as investors treated a Bank of Japan rate hike to 1.25% next week as almost certain. This led to a strengthening yen, which narrowed the gap between Japanese rates and higher-yielding alternatives abroad, causing the currency to rise to its firmest level since February at 153.37 per dollar.

The impact on sectors was mixed, with transportation equipment falling by 2.51% and rubber makers sliding by 2%, while oil and coal products gained 1.54%. Nomura Securities strategist Maki Sawada noted that the tension caused by a stronger yen can keep trading subdued, as companies' overseas revenue is reduced when translated back into fewer yen.