Japanese and Korean stock markets hit new highs, yen hits near two-year low, spot gold rises to $4,300

　　Source: Wallstreet Insights

　　Both Japanese and South Korean stock markets hit new historical highs, with the Nikkei 225 Index breaking above 71,000 points for the first time and the Korean Kospi approaching the 9,000 threshold. Meanwhile, the yen fell to a nearly two-year low, raising the risk of intervention. The Federal Reserve’s hawkish dot plot suggests a rate hike within the year, with the two-year US Treasury yield jumping 13 basis points in a single day; however, the reopening of the Strait of Hormuz through the US-Iran agreement pressured oil prices and eased inflation expectations.

　　Japanese and South Korean stock markets both set new record highs in early trading on Thursday, while the yen dropped to its lowest level since July 2024, as Asia-Pacific markets sought direction between the Federal Reserve's hawkish signals and the optimism from the US-Iran agreement.

　　The Nikkei 225 Index's intraday gain expanded to 2%, breaking above the 71,000 level for the first time ever; the Korean Composite Stock Price Index (Kospi) also set another record high.

　　A key factor driving the market's renewed optimism was Trump signing a temporary agreement with Iran and announcing the reopening of the Strait of Hormuz. Oil prices immediately came under pressure, with Brent crude dropping over 1% to below $79 per barrel, easing concerns about inflationary pressures.

　　However, the hawkish signals from the Federal Reserve continued to weigh on the bond market, and the persistent weakness of the yen has raised questions about whether Japanese authorities might intervene.

　　Asia-Pacific stock markets diverged, with technology heavyweights leading the gains

　　Stock market-wise, Japan and South Korea outperformed. The Nikkei 225 Index's intraday gain widened to 2%, closing above 71,000 for the first time ever, while the Topix Index rose 1.6%;

　　The Korean Kospi rose 0.89%, touching an intraday high of 8,975.52 points and nearing the critical 9,000 threshold. Index heavyweight SK Hynix surged 3.45%, hitting a new all-time high, while Samsung Electronics gained 1.23%. The small-cap Kosdaq Index fell 0.5%, underperforming relatively.

　　Australia's S&P/ASX 200 Index was mostly flat.

　　In US stocks, all three major US indices fell following the conclusion of the Federal Reserve meeting on Wednesday. The Dow Jones Industrial Average dropped 507.12 points, or 0.98%; the S&P 500 fell 1.21%; and the Nasdaq Composite declined 1.34%. The Dow had hit an intraday record early in the session but gave back all those gains after the Fed's hawkish signals.

　　However, US stock futures later rebounded, with S&P 500 futures up 0.8% and Nasdaq futures more than 1%, following Fed comments that drove a 1%+ drop on Wednesday. Spot gold also rebounded, breaking upwards toward $4,300/oz, up about 1% on the day.

　　Yen falls to a nearly two-year low, risk of intervention increases

　　The yen fell to 160.7 against the US dollar, its lowest since July 2024, and concerns are mounting that Japanese authorities may intervene in the market.

　　Bank of Japan Deputy Governor Kazuo Ueda said that the exchange rate is crucial to economic prospects but is not a direct policy target. The market responded coolly to this, and there is widespread concern that the BOJ’s policy tightening pace might not be enough to effectively curb inflation and stabilize the yen—even though the BOJ earlier this week lifted its benchmark rate to the highest since 1995.

　　Japan’s 10-year government bond yield climbed 2.5 basis points to 2.620%, following the sell-off in US Treasuries. Australia’s 10-year government bond yield similarly rose 3 basis points to 4.80%.

　　Federal Reserve turns hawkish as dot plot hints at a rate hike this year

　　The Federal Reserve concluded its policy meeting on Wednesday, keeping the benchmark interest rate unchanged in the 3.5%-3.75% range, but the latest “dot plot” shows several officials expect to raise rates in 2026. The year-end median rate projection was raised from 3.4% in March to 3.8%, signaling at least one rate hike within the year is on the agenda.

　　This was the first FOMC meeting chaired by Kevin Warsh. Warsh emphasized at the press conference that inflation has been above the Fed’s 2% target for several consecutive years and reiterated the central bank's commitment to restoring price stability but declined to provide specific forward guidance on policy. Notably, Warsh himself chose not to submit his rate projections, adding uncertainty to the dot plot interpretation.

　　About half of the Federal Open Market Committee (FOMC) members expect a rate hike this year, with traders now fully pricing in a hike by October and seeing a high probability of action in September. The two-year US Treasury yield, which is highly sensitive to policy expectations, jumped 13 basis points on Wednesday to 4.18%.

　　“Half the committee expects a rate hike this year—this is a real wake-up call for the market,” said Bob Michele, Chief Investment Officer and Global Head of Fixed Income at JP Morgan Asset Management. “I think they’re preparing for a hike.”

　　US-Iran agreement boosts risk sentiment, oil price drop continues

　　On Wednesday, Trump signed a memorandum of understanding with Iran at the Palace of Versailles, announcing the end of the war and the reopening of the Strait of Hormuz. One US official said the agreement is now officially in effect, but it remains unclear whether Iran has immediately taken steps to fully reopen the strait.

　　“Trump’s signing of the memorandum after the G7 summit is another important step in reopening the Strait of Hormuz,” said Rajeev De Mello, Global Macro Portfolio Manager at Gama Asset Management. “This will further reduce the energy risk premium, ease inflation concerns, and, after the Fed’s initial response, provide support to the bond and equity markets.”

　　Continuous updates

Editor: Zhu Henan