Asia report: Markets mixed as BoJ hikes rates to 30-year high

(Sharecast News) - Asia-Pacific markets were mixed on Tuesday as investors assessed the proposed US-Iran peace deal, after the Dow Jones Industrial Average climbed to a fresh record in the previous session and oil prices extended their decline.

"The Hormuz deal has reduced the worst-case scenario, but markets are no longer blindly extending the relief rally," said Patrick Munnelly, market strategy partner at TickMill.

"The BoJ has hiked without shocking, the RBA is still leaning hawkish, and China's consumer weakness is a reminder that lower oil is not a complete growth solution."

The moves came after US president Donald Trump said Washington and Tehran had reached an agreement to end the war in the Middle East.

Pakistani prime minister Shehbaz Sharif said both sides had declared the termination of military operations on all fronts, with an official signing ceremony due to take place on Friday in Switzerland.

A senior Trump administration official told CNBC that the memorandum of understanding had already been signed electronically on Sunday.

Trump also said the Strait of Hormuz would reopen on Friday, after the conflict disrupted one of the world's most important energy routes.

Oil prices fell again, with Brent crude futures last down 2% on ICE at $81.51 per barrel, and the NYMEX quote for West Texas Intermediate losing 2.24% to $78.94.

"Global markets are taking a breather after three strong sessions driven by the US-Iran agreement to reopen the Strait of Hormuz," Munnelly said.

"Brent has dipped below $83/bbl, extending the unwind of the geopolitical risk premium, but investors are now questioning how much of the good news is already priced."

Munnelly said the weekend breakthrough remained clearly positive because it reduced the immediate left-tail risk of a severe energy supply disruption and had helped revive the AI-led equity rally.

"But markets are rightly distinguishing between political agreement and operational normalisation," he said.

"A deal to reopen Hormuz does not instantly restore pre-conflict shipping patterns. De-mining, security verification, insurance repricing and the rebuilding of commercial shipping confidence will all take time."

Markets mixed as BoJ hikes rates

Japan's Nikkei 225 edged up 0.13% to 69,404.50, while the broader Topix slipped 0.21% to 3,991.14.

Fujikura rose 9.02%, Mitsui Kinzoku gained 8.53%, and Sumitomo Electric Industries added 6.85%.

The Bank of Japan raised its policy rate to 1%, in line with expectations from economists polled by Reuters, taking borrowing costs to their highest level in more than 30 years.

It was the central bank's first hike since December, when it lifted rates to 0.75%, and the first time since 1995 that rates had reached 1%.

The move continued the policy normalisation that began in 2024, as Japan contends with a weak yen and inflation pressures partly driven by the Iran war.

"The Bank of Japan delivered the main policy event overnight, raising rates by 25bps to 1%, the highest level since 1995," Munnelly said.

"The BoJ said it 'will continue to raise the policy interest rate', but offered little guidance on the timing or pace of future moves."

Munnelly said the lack of a hawkish surprise explained why USD-JPY failed to break below 160 ahead of the press conference, even after the rate increase.

"The market reaction fits the message," he said.

"JGB yields rose, the yen gave back its initial gains, and the Nikkei recovered as investors concluded that the BoJ had normalised without overtightening."

In China, the Shanghai Composite slipped 0.11% to 4,091.89, while the Shenzhen Component rose 0.93% to 15,675.25.

Shandong Gold Phoenix fell 10%, while Grand Sunergy Tech and Shanghai Weaver Network each lost 9.99%.

China's retail sales fell for the first time in more than three years in May, signalling a deepening slowdown in consumption.

Retail sales declined 0.6% from a year earlier, according to the National Bureau of Statistics, missing Reuters-polled expectations for no change and marking the first fall since December 2022.

Industrial output was stronger, rising 4.5% and beating expectations for 4.3% growth, while the national unemployment rate fell to 5.1% from 5.2% in April.

"China provided the main macro disappointment," Munnelly said.

"May industrial production held up reasonably well, rising 4.5% year-on-year after 4.1% previously.

"But retail sales fell 0.6% year-on-year, weaker than the -0.2% consensus and the first contraction in consumer spending since the pandemic."

Munnelly said the data reinforced the same uncomfortable China story, with exports resilient but domestic demand fragile and the property drag persistent.

Elsewhere, Hong Kong's Hang Seng Index fell 1.4% to 24,493.95.

Longfor Properties dropped 8.9%, China Hongqiao Group lost 7.13%, and China Resources Mixc Lifestyle declined 5.1%.

South Korea's Kospi 100 rose 2.34% to 10,879.82.

LIG Nex1 surged 18.58%, Hanwha Techwin gained 9.13%, and Hanwha Solutions added 9.04%.

Sydney manages gains after RBA stands pat

Heading down under, Australia's S&P/ASX 200 edged up 0.04% to 8,917.70.

Life360 rose 4.39%, Temple & Webster Group gained 3.91%, and Centuria Capital added 3.65%.

The Reserve Bank of Australia kept interest rates unchanged at 4.35%, while saying it remained ready to raise rates if needed to meet its price stability and full employment mandate.

The RBA said growth had been below expectations but inflation remained above target, with April inflation easing to 4.2% year on year but still above its 2% to 3% range.

"Higher fuel prices have added directly to inflation and there are indications that this is passing through to the prices of other goods and services, so inflation is likely to remain high for some time," the central bank said.

"In Australia, the RBA left the cash rate at 4.35%, also in line with expectations," Munnelly said.

"The statement acknowledged signs that the three hikes delivered earlier this year are affecting the economy, but it also retained a clear tightening bias."

Munnelly said markets did not price another full RBA hike over the next year, but the central bank still appeared determined to maintain tighter financial conditions.

Across the Tasman Sea, New Zealand's S&P/NZX 50 rose 0.49% to 13,426.13.

SkyCity Entertainment Group gained 8.25%, Vista Group International rose 3.57%, and Pacific Edge added 3.33%.

Dollar mixed against regional G10 peers

In currencies, the dollar was last down 0.01% on the yen to trade at JPY 160.33, as it rose 0.05% against the Aussie to AUD 1.4145, and fell 0.09% on the Kiwi to change hands at NZD 1.7158.

Reporting by Josh White for Sharecast.com.