The standard expectation after a rate increase is a stronger currency, rising bond yields, and downward pressure on stocks. Yield is the annual return an investor earns by holding a bond to maturity. The Bank of Japan raised rates. The markets moved in the opposite direction on every count. The yen fell past 157 against the dollar, the 10-year Japanese Government Bond yield slipped, and the Nikkei 225 stock index gained 1.5%.
Here is what made each of those moves unusual. When a central bank raises its benchmark rate, the floor price it charges when banks borrow from each other overnight, bond investors typically sell existing bonds because newer debt will offer higher returns. Selling pressure pushes prices down and yields up. The Japanese Government Bond market went the other direction, meaning buyers were stepping in rather than heading for the exits. That kind of buying points to a market that does not expect rates to keep rising.
The yen's move past 157 to the dollar carries the same inversion. A weaker yen means one dollar buys more Japanese currency than before. Rate hikes normally attract foreign capital because investors chase the higher return on deposits, and that demand pushes a currency up. The yen fell anyway.
Higher rates typically weigh on stocks because they raise borrowing costs for companies and make bonds a more competitive place to park money. An equity index rising on the same session a central bank tightened signals that investors read the decision as contained, or had already priced in something more severe before it landed. The Nikkei 225 gained 1.5%.