PrintJapan's Nikkei tops 70,000 for first time, bonds fall after BOJ hikes as expected
BY Reuters | ECONOMIC | 03:52 AM EDT* Central bank flags inflation risks without signalling urgency to tighten
* Yen steady near 160-per-dollar level seen as danger zone for intervention
* AI-related shares buoy Nikkei even as majority of components decline (Updates with BOJ Uchida's comments, closing stock prices)
By Kevin Buckland
TOKYO, June 16 (Reuters) - Japan's Nikkei share average rose to a record high on Tuesday after the Bank of Japan raised interest rates as widely expected, without signalling urgency for further tightening in monetary policy.
Japanese government bonds slid after the decision to raise the key rate by a quarter point to 1%, while the yen remained largely flat at around 160 per dollar, a level that traders see as a line in the sand for currency intervention by Japanese officials.
The Nikkei ended the day with a 0.1% gain to close at 69,404.50, although it earlier jumped as much as 1% to reach 70,020.68 for the first time.
The broader Topix, however, lost 0.2% on the day to finish at 3,991.14, after initially flipping to gains following the policy announcement, but then retracing that advance.
"Price rises are broadening, and there is a risk that underlying inflation may deviate from our target," whereas "the risk of a sharp deterioration in the economy has diminished," BOJ Deputy Governor Shinichi Uchida said at a news conference that began at the same time the stock market closed. He said there was no proposal for a half-point rate hike at the meeting.
The BOJ's decision to raise rates for the first time since December came during the trading break for stocks and bonds, and had little initial effect on the yen. Japan's currencyoscillated in a narrow range slightly on the weaker side of 160 per dollar , last changing hands at 160.32.
"The BOJ delivered what markets expected," said Charu Chanana, chief investment strategist at Saxo. "But the reaction shows this was not hawkish enough to force a major yen repricing."
The central bank "is still moving in a very gradual way and continues to say financial conditions will remain accommodative," she added. "This is mildly supportive for Japanese equities because the BOJ is tightening, but not in a way that threatens liquidity or earnings."
Of the Nikkei's 225 components, 78 rose versus 144 that fell, with three ending flat.
Several heavily weighted AI stocks had an outsized impact in
buoying the market. Chip-testing machinery makers outperformed,
with Advantest
Benchmark 10-year JGB futures lost 0.49 yen to 127.77 yen as of the end of the regular session. The yield on the 10-year cash bond was 7 basis points (bps) higher at 2.655%. Yields rise when bond prices fall.
Moves elsewhere on the curve were more muted, with the two-year yield adding 1 bp to 1.405% and 30-year yields rising 3 bps to 3.775%.
Prior to Tuesday, yields had been declining over the past several weeks from record highs, with inflation fears receding amid optimism for a near-term end to the Iran war.
"In a scenario where inflation accelerates or the yen weakens further, bringing forward the timing of the next rate hike could come into view," said Hirofumi Suzuki chief FX strategist at SMBC.
Currently though, "the BOJ is likely to continue raising rates at a gradual pace of around once every six months to one year," he said. (Reporting by Kevin Buckland; Editing by Subhranshu Sahu; Ronojoy Mazumdar and Kim Coghill)
