Japan's stock market: The major Nikkei 225 index has climbed 44% over the past year

The major index of the Tokyo Stock Exchange, Nikkei 225, rose on Friday, the last day of the fiscal year 2023, reaching 40,369.44 points, a level higher by 44% compared to the previous year, on the background of increased foreign purchases and depreciation yen against the dollar, which improved the outlook for Japanese exporters, according to Reuters and NHK World Japan.

The Nikkei 225's rise is the biggest since 2021 and was also boosted by expectations of solid demand for semiconductors following the artificial intelligence (AI) boom, while reforms at the Tokyo Stock Exchange encouraged listed companies to focus on rewarding shareholders, analysts say.

At the same time, the Japanese currency continued its depreciation against the US dollar, which crossed the 150 yen threshold on Wednesday - the highest rate in the last 34 years, which led the Bank of Japan to issue a warning that it will intervene to support the national currency. On Friday, the US dollar traded at 151.40 yen in Tokyo.

Fumio Matsumoto, analyst at Okasan Securities, says: "Investors remain cautious about a possible intervention by the Bank of Japan on the foreign exchange market, but overall, they perceive the depreciation of the yen as a positive factor for the domestic stock market. The stock exchange in Tokyo was also supported by the optimism that the Bank of Japan will not raise interest rates quickly".

Last month, Japan's central bank decided to raise its benchmark interest rate for the first time in 17 years, ending a long-running policy of negative interest rates aimed at stimulating the economy.

At the end of the monetary policy committee meeting on March 19, the Bank of Japan announced that it would apply a short-term reference interest rate of between 0 and 0.1%, compared to minus 0.1%, which was the level at which it stood since January 2016. This was the first decision to raise the cost of credit by the BoJ since February 2007.

"Negative interest rate policy combined with other measures to inject money into the economy and keep borrowing costs low have played their roles," Bank of Japan Governor Kazuo Ueda said at the time, adding that policy monetary policy will remain relaxed for a while.

Starting in 2016, the Bank of Japan practiced a policy of negative interest rates to support economic activity and favor inflation, which has been very low for a long time. The BoJ was the last major central bank in the world to apply negative interest rates, after this policy was abandoned in Europe in 2022.

• Yen - the weakest evolution among the main global currencies

Over the past three months, the yen had the weakest performance among major global currencies, depreciating by more than 7% against the dollar, even as the BoJ ended its eight-year period of negative interest rate policy.

In 2022, the Japanese authorities spent 9.2 trillion yen ($60.6 billion) to support the national currency in three interventions, each time insisting that they were not protecting a certain level of the yen.

Investors expect interest rate differentials between Japan and other developed economies, particularly the US, to remain wide even after the BoJ ends the era of negative rates that undermined the yen as investors prefer higher-yielding currencies.