How Japan's rate hike affects our major A-share market:

The Bank of Japan is expected to raise interest rates by 25 basis points at the December 19, 2025, monetary policy meeting, increasing the policy rate from 0.5% to 0.75%, reaching a 30-year high.

Main reasons include the continued core CPI exceeding the 2% target, the formation of wage-price cycles, the depreciation of the yen intensifying import inflation, and the narrowing of the US-Japan interest rate differential amid the Fed's rate cuts.

Overall impact on A-shares: "Short-term disturbance, limited in the long run": In the short term, it may trigger phased outflows of northbound funds (100-180 billion yuan per week), emotional volatility for 1-2 weeks, and pressure on high-valuation growth stocks; however, the low proportion of foreign capital (only 3-4%), domestic-led (institutional holdings over 22%), and valuation discounts (Shanghai and Shenzhen 300 PE only 14.45 times) provide buffers.

Transmission channels: Limited unwinding of carry trade positions and capital returning to Japan; exchange rate effects favor the appreciation of the yen, benefiting Chinese export companies to Japan (electronics, auto parts), and import-dependent industries (aviation, paper manufacturing), easing yen-denominated debt pressures. Beneficiary industries: semiconductor equipment/materials (domestic substitution), electronic components, auto parts, aviation, paper manufacturing, strategic resources.

Industries under pressure: export-dependent home appliances, high-end manufacturing relying on Japanese supply chains, high-valuation tech stocks. Overall, A-shares are resilient, mainly driven by domestic fundamentals in the long term. It is recommended to adopt a defensive approach and focus on high-quality, low-valuation, high-dividend, and growth sectors.