TOKYO: Japan’s Nikkei share average rose on Wednesday, helped by banks after the Bank of Japan raised interest rates for the second time since 2007.

The Nikkei was up 0.25% at 38,620.85 as of 0421 GMT, reversing earlier losses. The broader Topix also changed course to trade 0.37% higher.

The central bank raised its key rate target to 0.25% from around zero. Expectations for policy tightening had risen following reports overnight that the BOJ was mulling the move.

Several high-profile Japanese politicians including the prime minister had also batted for a near-term normalisation of monetary policy.

The Tokyo Stock Exchange’s banking index climbed 2.7% to be the top performer among the 33 industry groupings. Higher rates would improve lending margins and potentially boost investment income for banks.

A Topix index of value shares rallied 0.8%, while a growth share index sagged 0.2%.

“I had thought that a rate hike was unlikely this time, given ... hard data for both income and consumption doesn’t really show a positive cycle between wages and inflation yet,” said Norihiro Yamaguchi, senior Japan economist at Oxford Economics.

“Today’s decision revealed the bank’s strong appetite for hiking rates.”

Stocks of exporters including automakers were overall weaker, after the yen strengthened about 0.8% against the dollar on Tuesday following those reports.