Asian Markets Mixed as Tokyo Rises on Japan Rate Hike

Asian equities traded in mixed fashion on Tuesday morning as investors reacted to Japan’s rate increase to the highest level in 31 years, weaker-than-expected Chinese economic data, and a more cautious mood on developments in the Gulf after the initial enthusiasm over a preliminary Washington-Tehran deal faded.

Tokyo’s Nikkei rose 0.7%, Shanghai gained 0.1%, Shenzhen added 1.2%, Hong Kong’s Hang Seng fell 1.3%, and Seoul’s Kospi climbed 2.1%. The Bank of Japan voted 7 to 1 to raise its policy rate to 1%, a level last seen in 1995, marking its first increase since December, when it lifted rates to 0.75%.

The tightening comes as Japan faces a weak yen and gradually rising inflation, partly linked to the war in Iran. The central bank also said it will keep reducing its government bond purchases by 200 billion yen each calendar quarter, before ending that reduction and maintaining monthly purchases of 2 trillion yen of Japanese government bonds from April 2027.

In China, retail sales fell in May for the first time in more than three years, while urban fixed-asset investment contracted more than expected, increasing pressure on Beijing to announce meaningful stimulus to support consumption. Retail sales dropped 0.6% year on year, the first decline since December 2022, after the Labor Day holiday failed to offset weak consumer spending and earlier cuts to subsidies for replacing old goods. The drop surprised economists surveyed by Reuters, who had expected flat growth. Urban investment, including real estate and infrastructure, shrank 4.1% through the end of May, versus a forecast decline of 2%, deeper than the 1.6% fall seen in the first four months of the year. Wall Street rose sharply on Monday after the U.S.-Iran agreement announcement, with the Dow Jones up 0.9% to a record, the S&P 500 up 1.7%, and the Nasdaq up 3.1%.