Confused by Options? Start Here

The Nikkei 225 jumped 1.6% to above 66,000 on Thursday as the market reopened following an extended holiday, with technology and artificial intelligence stocks leading gains as they caught up with global peers. The surface reading is encouraging. The more uncomfortable reading is that much of what happened Thursday morning in Tokyo is a yen trade wearing an equity costume.

The Tokyo Stock Exchange was closed from September 21 to 23 for Silver Week holidays. Combined with the weekend, this created Japan’s first five-day Silver Week market closure in 11 years. Over the past month, the index has declined 0.29%, though it remains 43.51% higher than a year ago. That year-on-year number looks powerful until you price it in dollars at 157.

The yen weakened past 157 per dollar, hitting two-week lows after the Bank of Japan raised interest rates in a widely telegraphed move, with two officials dissenting. The BOJ raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, and the move marked a quickening in the rate hike cycle since normalization began in March 2024, with this rise taking place three months from the last hike compared to six months previously. That acceleration is the detail that matters most for positioning.

A more aggressive policy path tends to strengthen the yen, and a stronger yen compresses the overseas earnings that Japan’s biggest exporters report back in local currency terms. Today’s rally in tech names reflects the catch-up trade, not a new fundamental bid. Global tech and AI shares outperformed in recent sessions after Meta’s Muse personal AI agent rekindled investor interest in the sector, with notable gainers in Japan including Kioxia Holdings (3.2%), Ibiden Co (5.9%), Advantest (1%), SoftBank Group (5.4%) and Tokyo Electron (0.8%).

SoftBank was supported by strength in Arm and continued attention to the group’s financing plans linked to artificial intelligence investment, and it remains Tokyo’s most visible proxy for global AI investment because of its exposure to OpenAI, Arm, robotics, and digital infrastructure. Those are real long-term drivers. They are not what moved the index 1.6% in a single reopening session.

The currency is the active variable. The yen consolidated near 157 per dollar after falling more than 2% the prior week, with traders remaining on alert for possible intervention as Japan entered the holiday period. Lower liquidity means relatively modest flows can create disproportionately large moves, and Japanese authorities know that very well. Back during Golden Week, Reuters reported that Japan likely intervened during the holiday, buying yen in thin conditions.

Intervention does not automatically change the macro story. As long as US yields remain elevated, Fed expectations remain hawkish, and the BOJ communicates a relatively gradual approach to tightening, traders still have a sizeable rate incentive to hold USD/JPY longs. That is the structural tension: the BOJ is now hiking faster, but the rate gap with the US remains wide enough to keep yen-funded carry trades attractive.

For active traders, the framework is straightforward. The yen near 157 remains the most important domestic signal. Further weakness would support exporters but revive inflation and intervention concerns. A rebound toward 153 would ease import costs but pressure exporters and carry trades. Either path cuts the thesis for the current Nikkei level. Watch the BOJ’s next communication above everything else. If Governor Ueda signals a third consecutive quarterly hike at the October meeting, 157 breaks fast, and the exporters that drove today’s open will be the first to price lower.