Nikkei hits record above 71,000 after BOJ rate hike

Nikkei 225 closed at 71,053.49 on Thursday, extending a rally that began after the BOJ raised rates to 1% on Tuesday in a 7-1 vote.nikkei
The rate hike, the highest since 1995, was tempered by a dovish decision to pause bond-buying tapering starting April 2027, according to Reuters.reuters
Economists surveyed by Reuters expect another hike to 1.25% by year-end, though the yen remains under pressure near the 160-per-dollar level.reuters

Bank of Japan Raises Rates to Highest Level Since 1995

The Bank of Japan on Tuesday raised its benchmark overnight call rate by 25 basis points to 1.0%, marking the highest borrowing costs in the country since 1995 and joining a global wave of monetary tightening driven by persistent inflation linked in part to the months-long disruption of oil flows through the Strait of Hormuz.

A Historic Move

The decision, approved by a 7-1 vote at the conclusion of a two-day policy meeting on June 16, was the BOJ’s first rate increase since December 2025. Board member Toichiro Asada cast the sole dissenting vote, advocating for rates to remain unchanged. Governor Kazuo Ueda was absent from the meeting due to hospitalization for an infected liver cyst, leaving Deputy Governor Shinichi Uchida to chair the session and conduct the post-meeting briefing.reuters

The BOJ cited rising inflation pressures, elevated energy costs stemming from the Iran conflict, and a persistently weak yen as justification for the move. The central bank also announced it would pause its bond-buying taper starting in April 2027, continuing monthly purchases of approximately 2 trillion yen in Japanese government bonds — a dovish counterweight to the rate hike itself.reuters

Markets React

Japan’s Nikkei 225 surged past 70,000 for the first time on the day of the decision, hitting a record high of 70,020.68. By Thursday, the index had climbed further to close at 71,053.49, buoyed by optimism around artificial intelligence and the U.S.-Iran peace accord signed earlier in the week.yomiuri

The yen, however, remained under pressure. Despite the rate hike, wide yield differentials between the U.S. and Japan continued to favor the dollar, with USD/JPY trading near the 160-per-dollar level that has previously triggered intervention by Japanese authorities. Japan spent a record 11.7 trillion yen propping up the currency in April and May.reuters

What Comes Next

A Reuters survey of economists found that over three-quarters of respondents expect the BOJ to raise rates again to 1.25% in the fourth quarter of 2026. Deputy Governor Uchida reaffirmed the BOJ’s commitment to further normalization but declined to offer specific timing, citing ongoing uncertainties in the Middle East.reuters

The Strait of Hormuz blockade, which began in mid-April after the collapse of U.S.-Iran negotiations, has been a key driver of global inflation pressures. Three Iranian tankers this week made their first successful transits past the U.S. naval blockade in two months, ahead of a formal peace agreement signing scheduled for Friday in Geneva.cnbc