Nikkei Holds Near Record as Bank of Japan Weighs Further Tightening

Japanese equities held close to record levels this week, supported by strength in technology shares, as investors looked ahead to the Bank of Japan's next policy meeting on 30-31 July. The central bank lifted its benchmark rate to 1% in June, its first increase since December and the first time rates have reached that level since 1995, in a decision split 7-1. Since then, senior officials have kept a firmly hawkish tone. Board member Naoki Tamura argued the bank should raise rates by 0.25 percentage points at intervals of a few months toward a neutral level of around 2%, noting that higher import costs stemming from the Middle East conflict are likely to pass through to consumer prices more quickly and broadly than after the 2022 invasion of Ukraine. Deputy Governor Ryozo Himino said the bank would keep tightening while monitoring the risk that underlying inflation overshoots its 2% target, pointing to accelerating wholesale inflation as firms pass on costs. The yen remains a central concern: Goldman Sachs revised its 12-month dollar-yen forecast to 165 from 155 on 6 July, one of the more bearish calls on the currency, underlining how far Japanese rates still sit below those of other major economies.