Nikkei slips from record high, JGBs wobble on BOJ's hawkish hold

TOKYO: Japan’s Nikkei share average slipped from a record high, government bonds swung and the yen rallied on Tuesday, after the central bank struck a hawkish tone as it kept interest rates unchanged.

The benchmark Nikkei 225 Index fell 0.8% to 60,072.43 as the market reopened after a break to react to the Bank of Japan’s decision.

The broader Topix climbed 0.78% to 3,764.51.

The yield on the benchmark 10-year Japanese government bond rose to as high as 2.48%, near a 29-year peak of 2.49% touched earlier this month, before easing back to 2.46%.

The yen strengthened 0.2% to 159.02.

The BOJ held its policy rate steady, but three of the nine board members proposed hiking borrowing costs, signalling the bank’s concern about inflationary pressures stemming from the conflict in the Middle East.

“The outcome of the BOJ policy meeting was a bit hawkish, with three board members dissenting from the decision, not two,” said Kazuaki Shimada, chief strategist at Iwaicosmo Securities.

“That weighed on investor sentiment as they braced for an interest rate hike in June.”

Even so, the Nikkei’s drop today was largely driven by selloffs in artificial intelligence sector heavyweights Advantest and SoftBank Group, which have seen sharp gains of late, Shimada added.

Advantest on Monday raised its full-year profit forecast, but it failed to impress investors, with its shares sinking 4.4%.

SoftBank Group, a major investor in AI, plunged 9.8% and acted as the biggest drag on the Nikkei.

On Tuesday, there were 179 advancers on the Nikkei index against 46 decliners.

Among the sharpest gainers was Orix, surging 9.2% after Daiwa Securities Group said it would buy all of the company’s banking unit.

The JGB yield curve flattened, with longer bonds rallying and shorter notes falling, as investors reacted to the BOJ’s more hawkish stance.

The two-year yield, the one most sensitive to BOJ policy rates, increased 2 bps to 1.38%, while the 30-year yield sank 3.5 bps to 3.640%.

Yields move inversely to bond prices.

The BOJ highlighted upside risks for consumer prices and how that could impair the broader economy, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

“This indicates the BOJ’s readiness to raise rates to fend off the impact of price increases,” he said.