Japan heads into Thursday’s Tokyo Stock Exchange session with risk appetite recovering, the yen strengthening, and bond yields at multi‑year highs – a tricky mix for the Nikkei 225 right as investors eye a potential Bank of Japan rate hike later this month. [1]
Key points before the Tokyo open (Thursday, 4 December 2025)
- Nikkei just reclaimed the 50,000 area after a powerful tech‑led rebound on Wednesday, even as the broader Topix lagged. [2]
- BoJ expectations have flipped hawkish after Governor Kazuo Ueda said the bank will debate the “pros and cons” of raising rates at the 18–19 December meeting, pushing JGB yields to their highest levels since 2008. [3]
- The yen has strengthened back toward ¥155 per dollar, and Rabobank now forecasts USD/JPY “safely back below 150” within three months, a key risk for Japan’s exporters and equity bulls. [4]
- Wall Street rallied again overnight, with the Dow up about 0.9% (more than 400 points) as weak private‑sector jobs data reinforced market bets on a Fed rate cut next week. [5]
- Japan’s services PMI stayed firmly in expansion at 53.2 in November, and the composite PMI rose to 52.0, underscoring domestic resilience despite export softness. [6]
- Bond markets remain volatile ahead of a 30‑year JGB auction, with super‑long yields at record highs as investors brace for both BoJ tightening and heavy government issuance. [7]
Below is a deeper dive into the main drivers that could shape Thursday’s session in Tokyo.
1. How Tokyo closed on December 3 – and why it matters for the open
After a bruising start to the week driven by BoJ shock, Tokyo’s equity market showed clear signs of healing on Wednesday.
- Nikkei rebound: Japan’s Nikkei 225 rose roughly 1–1.5% on Wednesday, trading around the 50,000 mark at one point and closing just shy of that psychological level. Gains were concentrated in large‑cap tech and AI‑linked names. [8]
- Topix lag: The broader Topix index actually finished lower on the day, dragged by banks and some domestic cyclicals, highlighting that the rally was narrow rather than broad‑based. [9]
Sector moves on Wednesday (Tokyo): [10]
- Chip & tech winners:
- Advantest: +~4.5%
- Tokyo Electron: roughly +4%
- Renesas Electronics: nearly +7%
- SoftBank Group: around +4% intraday; other reports noted gains above 6% later in the day as AI optimism and headlines about Nvidia exposure drove flows.
- Banks under pressure:
- MUFG and SMFG each slipped about 2% as investors took profits following earlier gains tied to rate‑hike speculation.
- Autos softer:
- Toyota, Honda and Nissan all fell around 0.5–1%, reflecting concerns that a stronger yen could squeeze overseas earnings.
Why this matters for Thursday:
- The headline index looks strong, but under the surface breadth was weak and interest‑rate‑sensitive names struggled – a pattern that can easily flip if global risk sentiment wobbles or if bond yields lurch higher again. TS2 Tech+1
- For Thursday’s open, traders will be asking whether the tech‑led relief rally can extend, or whether we see rotation back into banks and value if bond market stress eases.
2. BoJ rate‑hike bets and surging JGB yields are still the big story
The biggest macro driver for Japanese assets this week remains the Bank of Japan.
Ueda’s hawkish signal
On Monday, BoJ Governor Kazuo Ueda delivered his clearest hint yet that another rate rise is on the table, saying the bank would weigh the “pros and cons” of hiking at the 18–19 December meeting. [11]
Markets are now largely pricing in a 25bp move to 0.75%, while watching carefully for guidance on the pace of further tightening.
JGB yields at multi‑year highs
Japanese government bonds have been hit hard:
- 10‑year JGB yield: around 1.89%, the highest since 2008.
- 5‑year yield: about 1.39%, highest since mid‑2008.
- 2‑year yield: just above 1.0%, near a 17‑year peak.
- 30‑year yield: 3.425%, a record, ahead of Thursday’s long‑bond auction. [12]
Selling has been driven by a double whammy of:
- Rising expectations for BoJ tightening; and
- A large fiscal package from Prime Minister Sanae Takaichi, funded partly via new issuance. [13]
What it means for equities on Thursday
- Banks & insurers: Higher yields can be positive for net interest margins and investment returns over time, but the speed of the move has raised mark‑to‑market risks on bond portfolios – part of why Japanese bank shares turned lower on Wednesday. [14]
- High‑duration growth stocks: Expensive tech names typically dislike rising real yields, but for now global AI optimism and Fed‑cut hopes are overpowering that headwind, at least in the short term. TS2 Tech+1
- Overall risk: If Thursday’s 30‑year JGB auction struggles, yields could spike again and spill over into equities at the open or during the session.
3. Yen moves: USD/JPY near 155 and the risk of a stronger currency
The yen is no longer the one‑way weakening story it was earlier this year.
From 158 to 155 – and maybe lower
- USD/JPY has pulled back from highs near 158 to the mid‑155s, marking the first meaningful loss of momentum in weeks. [15]
- In late New York trade on Wednesday, the dollar was around ¥155.1, extending a broader slide in the U.S. dollar index as markets leaned into a dovish Fed narrative. [16]
Rabobank now projects USD/JPY “safely back below 150” over a three‑month horizon, arguing that markets may be underestimating both BoJ’s willingness to tighten and Japan’s shift away from a deflationary regime. [17]
Equity implications
A firmer yen has mixed effects for Tokyo stocks:
- Negative for exporters: Automakers and electronics giants with large overseas earnings – including Toyota, Honda and Nissan – could see margin pressure if the currency keeps strengthening. Their underperformance on Wednesday reflected this concern. [18]
- Positive for domestic demand: A stronger yen lowers imported inflation, supporting household purchasing power and potentially benefiting retailers, travel, and other domestic‑focused names over time. [19]
- Valuation impact for foreign investors: For global investors, yen strength can boost local‑currency equity returns once translated back into dollars or euros – one reason many large asset managers remain overweight or constructive on Japan despite near‑term volatility. [20]
Going into Thursday, any move in USD/JPY away from 155 – in either direction – is likely to be felt quickly in autos, tech hardware, and other exporter-heavy segments of the Nikkei.
4. Wall Street rally and global risk sentiment set a positive backdrop
Tokyo doesn’t trade in a vacuum, and Wednesday’s U.S. session delivered a reasonably supportive lead‑in.
US stocks: bad news is good news (for now)
- The Dow Jones Industrial Average jumped about 0.9%, adding more than 400 points and logging its seventh gain in eight sessions.
- The S&P 500 and Nasdaq also finished higher, though with smaller gains of roughly 0.3% and 0.2% respectively. [21]
The trigger was a surprisingly weak ADP private‑sector jobs report:
- ADP showed a 32,000 drop in private payrolls for November – the largest decline in more than 2½ years – versus expectations for job growth. [22]
- Rather than panicking, investors saw this as confirming the case for a Fed rate cut at next week’s meeting; futures now imply close to a 90% chance of a 25bp cut. [23]
Global markets and Bitcoin
- Global shares were broadly higher on Wednesday as U.S. Treasury yields drifted lower and the dollar weakened. [24]
- Bitcoin rebounded above $90,000, a sharp turnaround after Monday’s crypto rout, helping restore broader risk appetite. [25]
Why Tokyo cares
- A dovish‑Fed + hawkish‑BoJ setup tends to favor yen strength but global equity support – a nuanced environment where Japanese tech and structural reform stories can still attract foreign flows even as currency and bond volatility inject noise. [26]
- Strong U.S. tech sentiment has been feeding into Japan’s own AI and semiconductor heavyweights, which again dominated Wednesday’s gains in Tokyo. [27]
Unless there is a sharp reversal in U.S. futures or a surprise macro headline before the open, global risk conditions look broadly supportive for another constructive – if choppy – Tokyo session.
5. Fresh domestic data: services PMI, stimulus and the real economy
Beyond markets and central banks, Japan’s latest macro data sends a cautiously encouraging signal.
Services sector still driving growth
The final S&P Global Japan Services PMI for November came in at 53.2, up slightly from 53.1 in October and marking an eighth straight month above the 50 line that separates expansion from contraction. [28]
Key details:
- New orders accelerated, highlighting solid domestic demand even as export‑oriented services remained soft.
- Service‑sector employment posted its fastest growth since January, with business confidence at its highest in nearly a year.
- Input costs rose at the quickest pace in six months, but output price inflation eased somewhat, suggesting companies are absorbing part of the cost pressure. [29]
The composite PMI, which blends manufacturing and services, rose to 52.0 from 51.5, signaling modest but persistent overall growth. [30]
Fiscal support from Takaichi’s government
Prime Minister Sanae Takaichi’s administration has approved a ¥21.3 trillion (~$137bn) stimulus package, aimed at cushioning households and businesses from cost‑of‑living pressures and supporting growth after a Q3 GDP contraction. [31]
For markets, this combination of:
- Resilient services activity,
- Supportive fiscal policy, and
- An emerging path away from ultra‑low rates,
helps fuel the narrative of Japan as a reflation story – albeit one now colliding with higher bond yields and currency normalization.
Over the next few sessions and into next week, investors will watch additional data releases (including global labor and inflation prints) for confirmation that this domestic recovery can coexist with tighter monetary policy.
6. Sectors and stocks to watch at the open
a) Tech, chips and AI: can momentum continue?
Semiconductor and AI‑linked plays are at the center of Tokyo’s current rally:
- Advantest, Tokyo Electron, Renesas and other chip names all posted strong gains on Wednesday, tracking the recovery in U.S. tech and ongoing enthusiasm for AI hardware demand. [32]
- SoftBank Group remains a key sentiment driver after headlines about founder Masayoshi Son regretting the sale of Nvidia shares – which he said made him “cry” – while ramping exposure to AI via huge investments tied to OpenAI and related projects. [33]
What to watch Thursday:
- Follow‑through buying in these names would signal that global AI optimism still trumps local bond and FX worries.
- Any intraday reversal, especially if coupled with a spike in yields or a sharp yen move, could trigger a quick de‑risking in crowded tech trades.
b) Megabanks and insurers: caught between higher rates and bond risk
Japan’s big banks enjoyed a sharp rally immediately after Ueda’s comments, but they gave back ground on Wednesday as JGB volatility intensified. [34]
For Thursday:
- If the 30‑year JGB auction goes smoothly and yields stabilize, banks could find support as investors refocus on better lending margins and the prospect of a more “normal” rate environment.
- A weak auction and fresh yield spike, however, would keep pressure on the sector and could spill over into insurers and some REITs.
c) Exporters and autos: sensitive to USD/JPY
Autos and industrial exporters underperformed on Wednesday as USD/JPY dipped, reflecting concerns that a stronger yen eats into overseas profits. [35]
On Thursday, watch:
- Toyota, Honda, Nissan, Subaru and major component makers for their reaction to any further moves in the currency.
- If USD/JPY drifts closer to 154 or below, selling pressure could intensify; a bounce back toward 156–157 would likely bring a relief bid.
d) Domestic plays and reform beneficiaries
Longer‑term structural themes remain intact:
- Global fund managers continue to highlight corporate governance reforms, Tokyo Stock Exchange pressure on low‑ROE companies, and shareholder‑friendly policies as reasons to stay constructive on Japanese equities. [36]
- Sectors tied to domestic services, tourism, and consumer spending may benefit from both fiscal support and robust services PMI data, even if they’re less in focus day‑to‑day than big tech. [37]
Thursday’s open will show whether local investors are ready to rotate toward broader domestic stories, or whether the market remains dominated by a narrow group of AI and chip champions.
7. Key events in the next 24 hours that could move Tokyo
Even though the article focuses on the period before Tokyo opens on Thursday, traders will be watching catalysts across the global day that can feed back into Japanese futures and FX:
- Japan 30‑year JGB auction: A critical test of demand at newly elevated yield levels; a smooth sale could calm bond markets, while a weak one might trigger another bout of volatility. [38]
- U.S. macro data (Thursday US time): Weekly jobless claims and other indicators will refine expectations for the Fed’s December decision; any upside surprise in growth or inflation could challenge the dovish consensus and push U.S. yields back up. [39]
- Fed meeting next week: Markets currently price a high probability of a cut; any rhetoric from Fed officials ahead of the blackout period is likely to move the dollar, which in turn feeds into USD/JPY and Japanese risk assets. [40]
- BoJ meeting countdown: With less than two weeks until the crucial December 18–19 BoJ decision, every data point on wages, prices and sentiment is now being interpreted through a policy lens. TS2 Tech+2Reuters+2
For traders in Tokyo, the pre‑open playbook is likely to revolve around:
- Where USD/JPY is trading relative to 155;
- The tone of U.S. equity futures;
- Early indications about JGB market stability.
Bottom line: Relief, but not complacency
Heading into Thursday, December 4, 2025, the Tokyo stock market finds itself in an unusual but potentially rewarding sweet spot:
- Supportive global backdrop: U.S. and European equities are grinding higher on expectations of a Fed rate cut, while crypto and other risk assets rebound. [41]
- Improving domestic data and fiscal support: Japan’s services sector is expanding, composite PMI is rising, and a large stimulus package is in place. [42]
- But rising local yields and a firmer yen: Multi‑year‑high JGB yields and a strengthening currency remind investors that Japan’s “free money” era is ending. [43]
For Thursday’s open specifically, the base case looks like:
- A constructive bias for the Nikkei 225, especially in tech and AI names,
- Ongoing pressure on banks, REITs and some autos if yields stay high and the yen holds firm,
- Elevated sensitivity to any surprise in bond auctions, U.S. data or central‑bank commentary.
In other words, Tokyo is enjoying a relief rally – but with BoJ and Fed decisions looming, and key FX and bond levels in play, this is not yet a “full‑clear” signal. Traders heading into the December 4 session should stay nimble, treating early strength as an opportunity to reassess positioning rather than a guarantee that the path to year‑end will be smooth.
References
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