Bank of Japan Holds Above Ceasefire Optimism as Nikkei Hits Records

Japanese equities extended their advance to record highs in July, supported by optimism over easing Middle East tensions and strength in technology and semiconductor shares. The Nikkei's rally followed the Bank of Japan's June decision to raise its policy rate by a quarter point to 1%, its highest level in about three decades, as the central bank judged that upside risks to inflation had grown while downside risks from the regional conflict had faded. Investors have interpreted the combination of firm corporate earnings, a weaker yen at points during the year and resilient global demand for Japanese exports as supportive of equities, even as higher rates raise borrowing costs. The central bank has signalled a continued tightening bias, with policymakers pointing toward a gradual move over time toward a more neutral setting, and markets are watching upcoming meetings for the timing of the next step. The record-setting run in Japanese stocks stands in contrast to more cautious sentiment elsewhere in Asia, where weak data weighed on some markets, and reflects growing confidence that Japan's exit from ultra-low interest rates can proceed without derailing growth.