Nikkei hits record high, Yen rebounds as Fed sticks to easing path

Nikkei surges: Japan's Nikkei share average reached a new record high on Thursday, while the yen staged a strong rebound from a four-month low, following the US Federal Reserve's commitment to its easing trajectory despite recent inflationary pressures.

The Fed's decision contrasts sharply with the Bank of Japan (BOJ), which recently concluded eight years of extraordinary stimulus measures with its first rate hike since 2007. 

However, BOJ Governor Kazuo Ueda reiterated that policy would remain accommodative for the foreseeable future during comments to parliament on Thursday.

While short-term Japanese government bond yields edged higher on expectations of tighter policy in the medium term, longer-dated sovereign paper yields declined as investors bought into fiscal year-end opportunities this month.

The Nikkei rose 1.67 per cent to 40,670.52 by midday, touching an all-time high of 40,748.77. Year-to-date, it has surged by 21.5 per cent, far surpassing the 8.1 per cent gain for the MSCI world index.

The dollar weakened by 0.5 per cent to 150.505 yen, following its peak of 151.82 yen on Tuesday, the highest since mid-November.

Yunosuke Ikeda, Nomura's chief equity strategist, noted that the BOJ and Fed announcements have reignited investor confidence in buying stocks, driven by improved corporate governance, emerging from deflation, and ongoing concerns about China.

While the Fed's commitment to three quarter-point rate cuts this year diverges from the BOJ's stance, Japanese policymakers stress that any future tightening would be gradual.

Market speculation suggests the BOJ could consider another hike this year, potentially in July or October, although analysts caution against prematurely forecasting such moves.

In the JGB market, two-year yields rose while longer-dated yields fell slightly, with the 10-year yield remaining flat at a two-week low.

Masayuki Kichikawa, chief Japan macro strategist at Sumitomo Mitsui DS Asset Management, highlighted the transitional period in the market, urging caution against hasty interpretations following the recent BOJ meeting.

(With Reuters Inputs)