finance

JAPANESE STOCKS CLOSE SHARPLY HIGHER AFTER FED MEETING, BANK OF JAPAN DECISION AWAITED

Most Asian stocks rose during trading on Thursday, and Japanese stocks closed the session sharply higher after the US Federal Reserve on Wednesday evening began its interest rate cutting cycle with a large reduction of 50 basis points, bringing the target range for the benchmark borrowing rate to 5.00% - 4.75%.

Today’s rise in Japanese stocks was mainly driven by the sharp decline in the Japanese yen against the US dollar, as traders prepare for the Bank of Japan’s interest rate decision on Friday morning, when the bank’s Monetary Policy Committee will announce its decision on interest rates, after the Bank of Japan ended its decades-long negative interest rate regime earlier this year.

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American stocks typically react to the Federal Reserve’s interest rate decisions because they influence borrowing costs, corporate profits, and consumer spending. A reduction in interest rates, like the 50 basis points cut you mentioned, tends to make borrowing cheaper for businesses and consumers, which can stimulate economic activity and boost stock prices in the U.S.

Regarding the connection between the Japanese yen, U.S. dollar, and Japanese stocks:

1. Weaker Yen, Stronger Japanese Exports:

A decline in the value of the yen against the U.S. dollar makes Japanese goods cheaper and more competitive in foreign markets, especially in the U.S. As a result, Japan's export-heavy industries (like electronics, automobiles, and machinery) benefit. When these industries thrive, their stock prices tend to rise, lifting the broader Japanese stock market.

What about the American stocks and why the Japanese stocks rose I didn't understand this point, what is the comman btw yan and dollar that lead to Japanese stock increase?