The Bank of Japan (BOJ) raised rates to 0.75%, signaling the end of the era of low interest rates. Thanks to the hike being priced in, the shock from the unwinding of yen carry trades was limited, but the market is focusing on the possibility of further tightening. Experts warn that this Japan-led rise in interest rates could weigh on the profitability of U.S. growth stocks next year.
The Bank of Japan (BOJ) held a policy board meeting on the 19th (local time) and raised the policy rate to 0.75% from 0.5%. With core consumer price inflation (CPI) exceeding the 2% target for an extended period, structural wage gains and higher import prices due to the weak yen have added to inflationary pressure.
Right after the hike, the market raised concerns about a large-scale unwinding of "yen carry trade" funds, which had borrowed cheap yen to invest in global risk assets. Japan's rate increase raises the yen funding expense, serving as a starting gun for pulling back from risk assets.
The actual market shock was limited. On the 19th (local time) in New York, the Nasdaq rose 1.38% and the S&P 500 gained 0.79%. The likelihood of a hike had been reflected in advance, and the slowdown in the U.S. November consumer price index (CPI) supported sentiment.
The yen also remained weak. The yen-dollar exchange rate fell to as low as 155.5 yen intraday but climbed back to 157.76 yen at the close. BOJ Governor Kazuo Ueda's cautious stance, saying the timing of an additional hike "depends on economic and price indicators," played a role.
Brokerages say attention should be paid to the possibility of an additional BOJ rate hike next year. Liquidity that flowed in through yen carry trades has supported U.S. growth stock prices, but if tightening signals strengthen, capital flows could shrink. As a result, a market led by growth potential could be reshaped around profitability and cash generation capability.
Kang Hyun-gi, an analyst at DB Securities, said, "In a weak-yen phase, conditions favor a continued expansion of valuations in the U.S. stock market," adding, "In the recent artificial intelligence (AI) industry as well, ample liquidity has at times driven prices more through expectations than through earnings."
He added, "If the yen turns stronger, the expansion of valuations could face limits," and analyzed, "For corporations that have undertaken AI facility investments, the market could shift to a phase where actual earnings improvements, not expectations, become the prerequisite for share price gains."
Some say the U.S. stock market has already entered a selective phase. Lee Jae-man, an analyst at Hana Securities, cited recent earnings from Oracle and Broadcom and noted, "Even within leading sectors, corporations with weakening profitability and cash flow may see underwhelming share-price returns."
He presented the following as criteria for selecting corporations: ▲ whether operating profit margin is improving ▲ growth rate of net income relative to revenue ▲ ratio of operating cash flow to capital expenditures (CAPEX) ▲ ratio of free cash flow (FCF) to revenue.
Most expect the next rate increase to come in the second half of next year or later. Gong Dong-rak, an analyst at Daishin Securities Co., said, "The BOJ indicated a hiking bias but made clear its intention to control the pace," and forecast, "The next hike is likely to be in the second half of 2026 or later."