Japan Nikkei share average trims early losses after yen weakens, following the BOJ's decision to keep interest rates unchanged

Japanese stocks had fallen earlier following a Wall Street sell-off triggered by the U.S. Federal Reserve's cautious stance on easing next year

Japan's Nikkei share average trimmed its early losses on Thursday after the yen weakened, following the Bank of Japan’s (BOJ) decision to keep interest rates unchanged.

While markets largely anticipated that the BOJ would likely delay further tightening until January or March, the yen slipped about 0.3% to trade at 155.26 to the dollar at 0340 GMT.

The Nikkei was down 0.75% at 38,790.14 after a 0.96% drop in the morning session. The broader Topix index bounced back from an initial 0.49% decline to end the session nearly flat.

Japanese government bonds showed little reaction to the rate decision. The benchmark 10-year futures were down 0.30 yen at 142.08 yen, and there was no significant movement in cash 10-year Japanese government bonds (JGBs) in the afternoon session.

Investors now await BOJ Governor Kazuo Ueda's press conference at 0630 GMT for further clues on the timing of potential future rate hikes.

Earlier, Japanese stocks fell, tracking a Wall Street sell-off triggered by the U.S. Federal Reserve’s cautious stance on easing next year, despite the expected quarter-point rate cut.

"Given the Fed statement, which was somewhat hawkish, you might have expected the BOJ to provide a more hawkish outlook too, but that didn’t happen," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.

"If Governor Ueda provides little clarity on imminent hikes, I suppose that will be seen as a dovish signal," Tan added.

The Fed's stance sent U.S. Treasury yields soaring, which in turn lifted JGB yields at the open. This dynamic contributed to the poor performance of interest-rate sensitive sectors, with real estate stocks suffering the most, while financials were the strongest performers.

The chip sector also saw significant losses, with Advantest down 3% and Tokyo Electron dropping 1.7%. Shares of SoftBank Group, an investor in artificial intelligence-focused startups, fell 4.3%, following a disappointing forecast from U.S. chipmaker Micron Technology, which signaled weak global demand.