In two trading days the Nikkei rose 2.1%, TOPIX 0.9%, and the Growth 250 fell 0.8%
The index looked stronger than the market, carried by chips and banks

Tokyo was shut for three days from September 21 to 23, leaving just the 24th and 25th. The Nikkei 225 rose from 65,018.95 to 66,364.20, up 1,345 points (+2.1%) for a fifth straight gain; TOPIX went from 4,091.14 to 4,128.59, up only 0.9% (Zaikei, Sep 18 close; Nikkei, Sep 25 close). The ratio of the Nikkei to TOPIX (the NT ratio) rose from 15.89 to 16.07.

The gap has a narrow source: Tokyo Electron +6.4%, Advantest +6.1%, Keyence +3.9%, and the electric and precision sector ETF +3.9%. Nikkei's market wrap says Tokyo Electron and Advantest accelerated in the morning session on the 25th and lifted the index. The Nikkei is price-weighted, so high-priced chip stocks count for far more in it than their market value would in TOPIX.

On Thursday the two indices moved in opposite directions: the Nikkei gained 0.8% while TOPIX slipped 0.4%. Breadth only arrived on Friday, with 1,118 Prime stocks up and 382 down. At the other end, Recruit fell 5.9%, Nintendo 2.9% and SoftBank Group 2.6%, and the TSE Growth 250 ETF lost 0.8%. The Nikkei's gain this week overstates how Japanese stocks did as a whole. Small growth stocks weakening after a hike fits the logic of higher rates discounting distant cash flows more heavily (inference).

The BOJ voted 7–2 on September 18 to raise its target for the uncollateralized overnight call rate from 1.0% to 1.25%, effective September 24, with board members Asada and Sato dissenting (BOJ statement). The statement says underlying inflation is nearing 2% with a risk of overshooting, and that the bank will continue to raise the policy rate as conditions warrant.

The bond market took it at its word. This week the 2-year yield rose 9.9 basis points to 1.948%, the 5-year 11.8 bp to 2.423% and the 10-year 9.0 bp to 3.071%, 100 bp above the end of last year.

The yen did not follow. The dollar rose from 156.13 yen to 158.81, a 1.7% weekly loss for the yen. The reason is in Washington: the Fed also hiked by 25 bp on September 16, to 3.75%–4.00% (Fed statement), and a stronger-than-expected US PMI on the 24th had markets betting on another Fed hike in October; by the 24th the yen had fallen for eight straight days (Nikkei). The 10-year Treasury yield rose 16 bp to 5.17%, and the US–Japan 10-year spread widened from 203 to 210 bp. With both central banks hiking, the gap still favours the dollar. The BOJ lists the weak yen as one of the forces pushing up prices, so the weaker the yen, the stronger the case for the next hike (inference).

Rising rates split the sectors. The bank ETF gained 1.9% and MUFG 2.6%, taking it to +49% this year; electric power and gas fell 3.1%, financials ex banks 2.5% and trading companies 1.7%. Nikkei also points to dividend-capture buying on the 25th: September 28 was the last day to hold shares for the September-end interim dividend.

Who was selling? JPX investor-type data only go up to the week of September 14–18; this week's are not out yet. That week foreign investors sold a net ¥642.5bn, their second straight week of net selling after ¥303.7bn the week before (Nikkei). Individuals sold a net ¥311.7bn and trust banks ¥294.3bn; business companies bought a net ¥166.3bn and have been net buyers in each of the past six weeks, most likely through buybacks (inference).

Among the TOPIX-17 sectors, electric and precision (+3.9%), machinery (+2.4%), banks (+1.9%) and raw materials and chemicals (+1.3%) led; electric power and gas (−3.1%), financials ex banks (−2.5%), trading companies (−1.7%) and IT and services (−1.5%) trailed. Ten of 17 sectors rose, but only four by more than 1%.

The megacaps were more divided still. Tokyo Electron and Advantest each gained over 6% this week and are up 65% and 73% this year; Recruit fell 5.9% but is still up 85% for the year. Toyota (−1.2%) and Sony (+0.4%) barely took part, with Toyota down 10.9% this year and Nintendo down 23.6%. The Nikkei is up 31.8% this year against 20.2% for the TOPIX ETF, a gap that comes mostly from high-priced chip and AI names (inference).

The curve bear-flattened: 2- and 5-year yields rose more than the 30-year (+9.9 and +11.8 against +6.8 bp) as markets priced in more hikes. The 10-year stands at 3.071%, 100 bp above last year's end; the 30-year at 4.112%.

The yen fell against all three currencies: −1.7% against the dollar, −1.6% against the yuan and −0.8% against the euro. Stocks were calm, with the Nikkei Volatility Index down from 24.2 to 20.3. The BOJ meets next on October 29–30 and the Fed on October 27–28, so the yen's direction hinges on the US jobs and inflation data in between (inference).

Over the past six weeks foreign investors bought in three and sold in three, for net selling of ¥613.1bn, including the last two weeks in a row. Trust banks were net sellers in all six weeks, ¥2.07tn in total, consistent with pension funds trimming equities after a rally to stay on their target weights (inference). Business companies were net buyers in all six weeks, ¥1.16tn in total. Individuals went back and forth and ended roughly flat (+¥61.9bn). This week's data (September 24–25) are due around October 1.

Mitsui & Co. fell 1.7% this week, 3.8 points behind the Nikkei, alongside Mitsubishi Corp. (−1.8%) near the bottom of the table; trading companies as a sector lost 1.7%. Mitsui is up 9.2% this year, far behind Mitsubishi Corp.'s 35.5%. Our Mitsui & Co. report is coming soon and will carry the rating; no call here.