Nikkei gains trimmed as BOJ survey fuels rate hike speculation

Japan's Nikkei share average traded higher on Monday but erased most of its early gains as the Bank of Japan's Tankan survey heightened expectations for an interest rate hike.

By midday, the Nikkei was up 0.26 per cent at 39,687.32, having risen as much as 0.9 per cent earlier in the session, buoyed by futures tracking higher on Friday. The Nikkei futures on the Chicago Mercantile Exchange ended 1 per cent higher on Friday. The broader Topix index rose 0.49 per cent to 2,823.34.

"The BOJ's Tankan survey suggested that Japanese companies will continue to raise prices and inflation will persist," said Shuutarou Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory. "This lifted expectations for a BOJ rate hike, prompting investors to sell stocks to lock in profits."

The BOJ's Tankan survey, released on Monday, showed the headline sentiment index for large manufacturers at +13 in June, up from +11 in March and slightly above the median market forecast of +12. This highest reading since March 2022 reflected a rebound in the automobile sector and successful price hikes by manufacturers to offset rising raw material costs.

Japan's 10-year government bond yield rose 3 basis points to 1.075 per cent.

Department store operators saw significant gains, with J.Front Retailing surging 12.76 per cent to become the top percentage gainer on the Nikkei and Takashimaya jumping 7.9 per cent, after both companies raised their annual profit forecasts.

The shipping sector rose 3.52 per cent, making it the top performer among the Tokyo Stock Exchange's 33 industry sub-indexes, while the insurance sector increased by 2.13 per cent.

On the downside, medical equipment maker Terumo fell 2.68 per cent, becoming the biggest drag on the Nikkei, while microchip equipment maker Lasertec declined 3.63 per cent, making it the biggest loser on the index.

(With Reuters inputs)