Analysis of the Impact of Bank of Japan's Monetary Policy on Japanese Stocks and Yen Trends

Based on the latest market data [0] and reports from Reuters [1][2], I will provide a detailed analysis of the impact of the Bank of Japan’s monetary policy on Japanese stock market investment strategies and yen trends.

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According to the latest news on January 23, 2026, the Bank of Japan kept interest rates unchanged at this monetary policy meeting but significantly raised its economic growth and inflation forecasts for fiscal 2024 (the fiscal year ending March 2026) [1]. This decision sends several important signals:

• Policy Stance
  : The Bank of Japan is optimistic about economic recovery but remains cautious, continuing to maintain an accommodative stance
• Upward Revision of Inflation Expectations
  : Indicates the central bank believes inflationary pressures will remain above the target level
• Upward Revision of Growth Expectations
  : Reflects confidence in improved economic fundamentals

The latest economic indicators show that the Japanese economy is in a recovery trend [2]:

Indicator	Value/Performance	Interpretation
Manufacturing PMI	Returned to expansion after 7 months	Manufacturing activity is picking up
December Core Inflation	Moderated but still above target	Inflationary pressures persist
Export Growth	Up for the fourth consecutive month (+5.1%)	External demand remains resilient
Government Growth Forecast	Raised from 0.7% to 1.1%	Improved economic outlook

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Based on market data analysis [0], the yen exchange rate has shown the following characteristics recently:

:

• Latest Exchange Rate
  : 147.04 yen per US dollar
• Period Change
  : Appreciated by about 7.3% from around 159 yen in early October 2025 to 147 yen
• Fluctuation Range
  : 146.59-159.45 yen
• Average Level
  : Approximately 154.70 yen

Factor	Direction	Impact Analysis
Monetary Policy Divergence	Supports the yen	The Bank of Japan has continued to raise interest rates (already increased to 0.75% in December 2025 [2]), while the Federal Reserve may slow its rate hike pace
Trade Data	Supports the yen	The trade surplus has narrowed but remains in surplus, providing fundamental support for the yen
Safe-Haven Demand	Supports the yen	Increased global economic uncertainty has boosted demand for the yen as a safe-haven currency
Carry Trade Unwinding	Supports the yen	The normalization of the Bank of Japan’s policy has reversed carry trades, accelerating the yen’s appreciation

:

• The yen is expected to fluctuate within the 145-155 range
• If the Bank of Japan sends a clearer signal of interest rate hikes, it may test the 140 level
• It is necessary to pay attention to the impact of the new US administration’s trade policy on the yen

:

• The Bank of Japan is expected to continue the process of monetary policy normalization
• The yen may gradually move towards the 140-145 range
• However, it is necessary to warn that the impact of US tariff policies on Japanese exports may delay the pace of interest rate hikes

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Based on analysis of the iShares MSCI Japan ETF (EWJ) [0]:

:

• Initial Price
  : US$80.21 (October 2025)
• Ending Price
  : US$84.86 (January 2026)
• Period Gain
  : +5.80%
• Price Range
  : US$78.21-86.00
• Average Trading Volume
  : 6.076 million shares

The Japanese stock market shows obvious structural differentiation [2]:

Industry	Performance	Driving Factors
Technology/Semiconductors	Strong	AI boom drives demand for data center chips, Asian exports up 10.2%
Export Manufacturing	Neutral to Weak	Exports to the US fell 11.1% due to tariff impacts
Domestic Demand Sectors	To Be Observed	Whether wage growth can translate into consumption remains to be verified

Strategy	Recommendation	Rationale
Overweight Technology/High-end Manufacturing	★★★★★	Strong demand for AI chips, Asian supply chains benefit
Benchmark Weight Export-Oriented	★★★☆☆	Yen appreciation compresses profit margins, but Asian demand offsets the impact
Underweight Companies with High US Exposure	★★☆☆☆	High tariff uncertainty
Focus on Domestic Demand Recovery Sectors	★★★★☆	Wage growth + policy stimulus may drive consumption

:

• Manufacturing PMI returned to expansionary territory, confirming economic recovery
• Corporate profit expectations raised, valuations have support
• Japanese corporate governance reforms continue to advance, enhancing shareholder returns

:

• Rapid yen appreciation may erode export corporate profits
• Uncertainty over US tariff policies
• Risk of slowing global economic growth

1. Currency Hedging
   : For yen-sensitive investments, consider using currency hedging tools
2. Diversified Allocation
   : Against the backdrop of yen appreciation, focus on companies with high domestic revenue in Japan
3. Dynamic Adjustment
   : Flexibly adjust positions based on yen trends and central bank policy signals
4. Focus on Policy Windows
   : The Bank of Japan’s next meeting (March 2026) may be an important policy turning point

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According to data analysis [0], the yen and the Japanese stock market show a

(correlation coefficient of approximately -0.3 to -0.5), which means:

Scenario	Yen Trend	Impact on Japanese Stock Market
Yen Appreciation	Capital flows into Japan, but export corporate profits are under pressure	Overall negative, with structural differentiation
Yen Depreciation	Export competitiveness improves, but capital outflows occur	Overall positive, especially for export sectors

:

• The yen has depreciated by about 7.3% from its high, benefiting export companies
• However, manufacturing reshoring and supply chain restructuring may weaken the boosting effect of yen depreciation on exports
• Investors need to focus more on corporate fundamentals rather than just exchange rate factors

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Variable	Forecast
Bank of Japan Policy	Hike interest rates 1-2 more times in 2026, bringing rates to 1.0-1.25%
Yen Exchange Rate	Fluctuates within the 140-150 range
Japanese Stock Market	Mildly rises 5-10%, led by the technology sector

Variable	Forecast
Bank of Japan Policy	Accelerates normalization, bringing rates to 1.5%
Yen Exchange Rate	135-140 range, yen strengthens
Japanese Stock Market	Rises 10-15%, valuation expansion

Risk: Excessively rapid yen appreciation may inhibit export recovery

Variable	Forecast
Bank of Japan Policy	Pauses rate hikes, waits for economic data
Yen Exchange Rate	155-160 range, yen weakens
Japanese Stock Market	Volatile or slightly pulls back to digest valuations

Risk: US tariff policies significantly impact Japanese exports

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1. Normalization of Bank of Japan Policy Will Continue
   : The upward revision of growth and inflation forecasts indicates the central bank’s confidence in the economic outlook, and it is expected to continue gradual interest rate hikes [1]

2. Yen Expected to Appreciate Mildly
   : Monetary policy divergence, safe-haven demand, and carry trade unwinding will support the yen, but the pace of appreciation will be affected by economic data and policy signals

3. Structural Opportunities in Japanese Stock Market Outweigh Systemic Risks
   :
   • Technology/high-end manufacturing sectors benefit from the global AI boom and growing Asian demand
   • Need to be cautious of companies highly dependent on exports to the US
   • Domestic demand sectors may be the next growth driver

Strategy Type	Specific Recommendations
Long-term Allocation	Maintain strategic allocation to the Japanese stock market, focusing on technology and high-end manufacturing
Trading Opportunities	Use yen fluctuations for range trading; increase allocation to export sectors when the yen depreciates
Risk Hedging	Hedge yen-sensitive exposures
Dynamic Adjustment	Closely monitor Bank of Japan policy signals and changes in US trade policy

• Remarks by Bank of Japan Governor and policy meeting minutes
• Trends in US trade policy towards Japan
• Japanese wage data and consumption indicators
• Changes in global AI industry chain demand
• Yen exchange rate breaking key levels of 145 and 155

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[1] Reuters - “BOJ keeps rates steady, raises growth and inflation forecasts” (January 23, 2026)
https://www.reuters.com/world/asia-pacific/boj-keeps-rates-steady-raises-growth-inflation-forecasts-2026-01-23/

[2] Reuters - “Japan’s exports up for fourth straight month, US dip clouds outlook” (January 22, 2026)
https://www.reuters.com/world/asia-pacific/japans-exports-rise-fourth-straight-month-partly-boosted-by-weaker-yen-2026-01-22/

[3] Jinling AI Market Data Analysis [0]