Tokyo’s stock market ended a volatile first week of December with the Nikkei 225 at 50,491.87 on Friday, up about 0.5%from the previous week, while the broader TOPIX finished at 3,362.56, down roughly 0.5% over the same period. [1]
Behind those modest weekly moves was a dramatic tug‑of‑war: growing conviction that the Bank of Japan (BOJ) will raise rates to 0.75% later this month, a sharp rise in Japanese government bond (JGB) yields, a firmer yen, and global optimism that the U.S. Federal Reserve will deliver another rate cut in December. [2]
Key takeaways for the week (Dec 1–6, 2025)
- Nikkei 225: +0.5% week‑on‑week; still about 4% below its record high near 52,637 but trading close to historic levels. [3]
- TOPIX: –0.5% on the week, even after touching a fresh 52‑week high area around 3,400 intraday on Thursday. [4]
- Macro driver #1: Markets now treat a December BOJ rate hike to 0.75% as the base case, with odds around 80%+ after Governor Kazuo Ueda’s hawkish speech. [5]
- Macro driver #2: The 10‑year JGB yield climbed toward 1.95%, its highest level since 2007, keeping rate‑sensitive sectors, especially banks and exporters, on edge. [6]
- Macro driver #3: The yen strengthened into the mid‑154 per dollar as BOJ hike bets grew while markets priced in a widely expected Fed rate cut next week. [7]
1. Headline performance: Nikkei edges up, TOPIX slips
Nikkei 225
- Previous Friday (Nov 28): 50,253.91
- This Friday (Dec 5): 50,491.87
- Weekly move: +237.96 points (about +0.47%) [8]
The Nikkei remains roughly 4.1% below its 52‑week high of 52,636.87, highlighting how close Japanese equities still are to record territory despite the recent pullback. [9]
TOPIX
- Previous Friday (Nov 28): 3,378.44
- This Friday (Dec 5): 3,362.56
- Weekly move: –15.88 points (about –0.47%) [10]
TOPIX’s 52‑week range runs from 2,243.21 to 3,400.28, with this week’s high of 3,400.28 reached on Thursday before Friday’s pullback. [11]
The divergence — Nikkei slightly up, TOPIX slightly down — reflects index composition: heavyweight exporters and tech names helped lift the Nikkei on days when broader, domestically oriented shares lagged.
2. BOJ rate‑hike bets, JGB yields and the yen: the dominant story
BOJ signals December hike to 0.75%
On Monday, December 1, BOJ Governor Kazuo Ueda delivered his clearest signal yet that the central bank is ready to raise its policy rate from 0.5% to 0.75% at the December 18–19 meeting. He said the BOJ would weigh the “pros and cons” of a hike and described it as “easing off the accelerator rather than applying the brakes,” stressing that real interest rates would remain deeply negative even after a move. [12]
After the speech:
- Markets quickly priced in roughly an 80% chance of a December hike, up from about 60% the previous week. [13]
- The yen climbed, and 2‑year JGB yields — most sensitive to BOJ policy expectations — hit their highest levels since 2008. [14]
A separate Reuters piece later in the week noted that investors now almost fully price a move to 0.75%, bringing the policy rate close to the bottom of the BOJ’s estimated neutral range of 1–2.5%. [15]
JGB sell‑off and “constructive ambiguity”
The 10‑year JGB yield surged to around 1.94–1.95%, its highest level since mid‑2007, before slipping back after a strong long‑bond auction. [16]
- Analysts at Nomura Asset Management estimate that futures markets were pricing in about an 82% probabilityof a December hike, noting that higher yields had already done some of the tightening for the BOJ and triggered an early‑week stock sell‑off. [17]
- Former BOJ officials told Reuters they expect the bank to adopt “constructive ambiguity” on how far rates can rise, avoiding a precise target for the neutral rate to preserve flexibility and avoid sparking another bond rout. [18]
Yen strength vs. Fed cuts: carry trade in focus
In FX markets, the dollar slipped nearly 1% against the yen on Monday after Ueda’s remarks, with the pair trading around ¥155 as traders bet on a BOJ hike and a Fed cut in the same month. [19]
Analysts at OANDA/MarketPulse now see:
- A December hike to 0.75% as the base case
- A further move toward 1% in spring 2026
- The U.S.–Japan rate gap narrowing to around 150 basis points by the end of next year, supportive of further yen appreciation [20]
A stronger yen is positive for Japanese households but negative for exporters and for investors running yen-funded carry trades into global risk assets — a dynamic that kept Tokyo equities jittery all week. [21]
3. Day‑by‑day: how Tokyo traded this week
Trading days: Dec 1–5, 2025 (Tokyo market closed Saturday, Dec 6)
Monday, Dec 1 – Sharp sell‑off on BOJ shock
- Nikkei 225: 49,303.28 (–1.9%)
- TOPIX: 3,338.33 (–1.2%) [22]
Japanese stocks and government bonds were heavily sold after Ueda’s speech in Nagoya, as investors scrambled to re‑price the odds of a December move. [23]
Key details:
- 10‑year JGB yield jumped to about 1.875%, the highest since 2008. [24]
- The yen strengthened to around ¥155.4 per dollar, from the high‑¥156s late last week. [25]
- Exporters and rate‑sensitive shares led declines, ending a multi‑day winning streak for the Nikkei. [26]
Tuesday, Dec 2 – Market stabilises
- Nikkei 225: 49,303.45 (flat)
- TOPIX: 3,341.06 (+0.1%) [27]
A day after the rout, Tokyo stocks closed essentially unchanged, with TOPIX eking out a small gain. TradingEconomics/TradingView commentary noted that sentiment improved after Ueda stressed the BOJ would keep financial conditions accommodative even after a potential hike, soothing fears of a rapid tightening cycle. [28]
Wednesday, Dec 3 – Tech‑led rebound
- Nikkei 225: 49,864.68 (+1.1%)
- TOPIX: 3,334.32 (–0.2%) [29]
Tokyo’s market diverged:
- The Nikkei climbed as chip‑related and growth stocks tracked overnight gains on Wall Street. [30]
- The TOPIX slipped, suggesting banks and other domestically oriented shares lagged as investors reconsidered how far yields could really rise without destabilising the bond market. [31]
Thursday, Dec 4 – Big rally on JGB auction and AI enthusiasm
- Nikkei 225: 51,028.42 (+2.3%) – a three‑week closing high
- TOPIX: 3,398.21 (+1.9%) [32]
Thursday was the standout session:
- A 30‑year JGB auction drew strong demand, calming nerves after the earlier bond sell‑off and helping push equities sharply higher. [33]
- Xinhua and other outlets reported that AI‑related and robotics stocks led the advance; the Nikkei jumped over 1,160 points, while TOPIX gained nearly 2%. [34]
- Nasdaq/Morningstar reports highlighted SoftBank Group surging over 9% and Tokyo Electron rising more than 3%, as global enthusiasm for AI spilled into Japanese heavyweights. [35]
By the close, the Nikkei had recovered the late‑November pullback and was trading once again near its all‑time highs. [36]
Friday, Dec 5 – BOJ fears bite back
- Nikkei 225: 50,491.87 (–1.05%)
- TOPIX: 3,362.56 (–1.05%) [37]
Friday saw a sharp reversal:
- Xinhua reported that the Nikkei fell more than 800 points intraday before trimming losses, finishing down 536.55 points (–1.05%), with TOPIX also dropping 1.05%. [38]
- The 10‑year JGB yield touched around 1.95%, the highest since July 2007, underscoring just how far Japanese yields have moved in anticipation of BOJ normalisation. [39]
- Exporter shares were hit as the yen firmed into the low‑¥154 range following reports that the BOJ is ready to raise the policy rate and may signal further hikes if its outlook materialises. [40]
Reuters noted that the Nikkei’s decline effectively wiped out the week’s earlier gains, leaving the index essentially flat on a week‑to‑date basis in intraday terms — even if the final close still nudged slightly higher than last Friday. [41]
4. Sector and stock themes
4.1 AI, chips and growth stocks
AI and semiconductor names were the bright spots of the week:
- Thursday’s rally was powered by SoftBank Group and Tokyo Electron, both of which benefited from global AI enthusiasm and hopes that higher domestic rates will not derail long‑term tech investment. [42]
- Thursday’s Xinhua recap explicitly linked the Nikkei’s move to optimism over AI‑related growth, helping offset anxiety over higher yields. [43]
More broadly, a Reuters op‑ed on Asian equities highlighted that corporate governance reforms and stronger shareholder‑return policies — including in Japan — have been key drivers of the region’s re‑rating this year, supporting the AI and tech trade. [44]
4.2 Banks and financials
Financials offered a more mixed picture:
- Rising yields and expectations for higher policy rates have pushed major Japanese banks like MUFG, Mizuho and Sumitomo Mitsui to multi‑year or record highs in recent months. [45]
- However, as Thursday’s bond auction showed, extremely rapid yield spikes can spook equity investors, limiting how far bank stocks can benefit from widening net interest margins before valuations start to look stretched. [46]
4.3 Exporters and domestic demand names
Exporters were whipsawed:
- A stronger yen late in the week pressured automotive and technology exporters by squeezing the yen value of overseas earnings. [47]
- At the same time, some domestic demand stocks — retailers and service providers — found support from the prospect of slower imported inflation if the yen keeps appreciating, though concerns remain about the drag from higher borrowing costs and still‑elevated prices. [48]
5. Forecasts and analyses: what’s next for Nikkei 225 and TOPIX?
5.1 Policy expectations into the December BOJ meeting
Across research desks, a consensus is forming:
- December hike to 0.75% is the base case, with futures and swaps markets “almost fully pricing” such a move. [49]
- Nomura’s strategist argues that because expectations are already high, the direct impact of the hike on equities may be limited, unless the BOJ surprises on the pace of future tightening. [50]
- OANDA sees the BOJ lifting rates again to around 1% in 2026, while the Fed continues cutting, narrowing the rate gap and supporting a stronger yen over the next year. [51]
Reuters’ “constructive ambiguity” piece suggests the BOJ will likely avoid committing to a precise neutral rate, preferring flexible guidance that keeps options open and reduces the risk of another disorderly bond sell‑off. [52]
5.2 Technical outlook for the Nikkei 225
From a technical perspective, analysts are split but see two‑sided risk:
- An Invezz/TradingView piece notes that the Nikkei has pulled back from a year‑to‑date high around 52,627 to the 49,000–50,000 zone — roughly a 6% correction at the lows — but still trades above its 50‑ and 100‑day exponential moving averages and a rising trendline from August. The author expects the index to resume its uptrend and potentially retest the 52,626 resistance as long as that trendline holds. [53]
- By contrast, a Forex.com technical note (summary only accessible) flags the appearance of bearish engulfing and evening‑star patterns, warning that hawkish BOJ expectations could trigger a deeper correction if the yen spikes further. [54]
Taken together, the charts suggest that while the medium‑term trend for Japanese equities remains up, short‑term volatility around the December BOJ and Fed decisions could be significant.
5.3 Structural backdrop: reforms and valuations
Beyond the week’s headlines, structural factors still underpin investor interest in Japan:
- A Reuters long‑form commentary highlights that Asia’s stock rally this year — including Japan’s — rests heavily on corporate governance reforms, rising share buybacks, and efforts by the Tokyo Stock Exchange to push chronically undervalued companies to improve capital efficiency. [55]
- Despite strong gains, Japanese equities still trade at a valuation discount to the U.S., suggesting room for further normalization if reforms and earnings growth continue. [56]
For global asset allocators, that means this week’s BOJ‑driven volatility is being weighed against a still‑appealing longer‑term story of improved governance, better shareholder returns and exposure to global themes like AI and advanced manufacturing.
6. What to watch in the coming days
Looking ahead from the week of Dec 1–6, 2025, Tokyo investors will focus on:
- BOJ meeting (Dec 18–19)
- Decision on a move to 0.75%
- Any guidance on the neutral rate and the likely path of further hikes [57]
- Fed meeting and U.S. data
- Markets now price an over 80–90% chance of a 25 bps cut, with debate about how dovish the guidance will be. The balance here will directly affect the dollar/yen and global risk appetite. [58]
- Yen and JGB yields
- Further yen strength and another spike in long‑dated yields would likely pressure exporters and high‑duration growth stocks again, while modest, orderly moves could actually reinforce confidence that the BOJ can normalise policy without derailing the expansion. [59]
- Domestic data: wages and consumption
- Weaker‑than‑expected household spending in Friday’s data reminded investors that inflation is biting, and sustained wage growth is crucial if the BOJ is to justify continued hikes. [60]
Bottom line
The Tokyo stock market’s first week of December 2025 was a classic case of calm headlines hiding deep cross‑currents. The Nikkei and TOPIX finished only marginally changed, but under the surface, investors repriced Japan’s monetary regime, wrestled with the implications of a stronger yen, and rotated aggressively between AI‑driven growth names, banks, and exporters.
With both the BOJ and the Fed set to make crucial decisions later this month, Tokyo remains one of the most event‑driven major markets heading into year‑end — and the whipsaws seen between December 1 and 5 may be a preview of more volatility to come.
References
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