BOJ Hikes to 1%, Yen Stays Above 160; Iran Deal Lifts Asia

The Bank of Japan raised its policy rate to 1% on Tuesday, the highest since 1995, and confirmed it will pause monthly JGB purchase reductions from April 2027 at a pace of around 2 trillion yen per month. The BOJ flagged upside risk to its 2% CPI target and projected inflation clearly above that level in the period ahead. The statement gave no explicit signal on the pace of future rate increases, leaving the market to focus on the taper pause as the main policy takeaway.

USD/JPY held above 160.00 after the decision. Traders said the muted reaction reflected a market that needs real economy momentum and a credible path of sustained tightening, not incremental rate moves, to drive a durable yen recovery. The yen has weakened 8% against the dollar this year, and the BOJ's cautious tightening path has done little to reverse the trend. The Nikkei and Topix drifted lower ahead of the announcement before bouncing on the headline, ending off Monday's record highs. The 10-year JGB yield edged lower after the taper pause announcement. Traders said the BOJ's commitment to a fixed buying pace removed some uncertainty about supply.

Broader regional sentiment stayed constructive. South Korean shares extended gains, tracking Wall Street's overnight rally. The US-Iran peace framework continued to lift risk appetite across Asian markets.

Goldman Sachs cut its Q4 2026 Brent forecast to $80 a barrel from $90 and its 2027 average to $75 from $80. The bank brought forward its assumption for Persian Gulf export normalisation to end-July from end-August, reflecting growing confidence in the pace of Hormuz reopening. It was Goldman's second downward revision to oil price forecasts in a week. The bank's GS stock page Alpha Score sits at 53, reflecting mixed sentiment. Brent crude futures fell below $75 a barrel on the news, extending last week's decline.

China's data added a mixed signal. Industrial output rose a stronger-than-expected 4.5% in May, driven by AI-related export demand. Retail sales fell 0.6% year on year, their first decline since the pandemic. Fixed asset investment contracted 4.1% in the year to date, well below forecasts. Property investment continued to deteriorate, with new home prices falling at a slightly faster monthly pace. Larger cities showed tentative signs of stabilisation. The broader sector remains under pressure from weak household borrowing and subdued consumer confidence. For more on the retail sales data, see China May Retail Sales Fall 0.6%, First Drop Since 2022.

Goldman now expects Persian Gulf export normalisation by end-July, a shift from its prior end-August view. That timeline will be the next test for oil markets and the broader risk-on trade in Asia.