Japan's Nikkei extends record climb after BOJ refrains from rate hike

By Kevin Buckland and Rocky Swift

Japan's Nikkei share average climbed to a new high on Thursday after the Bank of Japan refrained from raising interest rates.

The yen weakened and Japanese government bond (JGB) yields declined following the central bank's announcement, despite traders and economists widely expecting no change to policy this time.

Focus now turns to BOJ Governor Kazuo Ueda's news conference at 0630 GMT for clues on whether a rate hike at the next meeting in December is a possibility.

"The central bank is clearly staying cautious and it remains hard to argue for increased odds of a December rate hike," said Charu Chanana, chief investment strategist at Saxo.

"Unless Governor Ueda sounds meaningfully more hawkish at the presser, yen bears may get bolder."

The Nikkei NI225 climbed as much as 0.6% to reach 51,620.79 for the first time, before succumbing to some profit taking that sent it back to 51,115.84 as of 0450 GMT, about 0.4% lower on the day.

The broader Topix TOPIX gained 0.4% to 3,291.94.

The yen USDJPY flipped from a 0.4% gain to fall 0.3% to 153.125 per U.S. dollar immediately after the BOJ decision, but last traded flat at 152.74.

Trading was made more volatile by news headlines from U.S. President Donald Trump's meeting in South Korea with Chinese leader Xi Jinping as they sought a truce in their trade war.

Trump called the meeting "amazing", and said chips were discussed and rare earth issues had been settled.

At the same time, U.S. tariffs on Chinese imports were only reduced to 47% from 57%, although Trump had threatened 100% levies.

In Japan's debt market, yields on 10-year JGBs (JP10YTN=JBTC) erased an earlier gain to trade flat at 1.65%. The five-year yield (JP5YTN=JBTC) fell half a basis point to 1.22%, and the two-year yield (JP2YTN=JBTC) declined 1 basis point to 0.93%.

The BOJ repeated its pledge to continue increasing borrowing costs if the economy moves in line with its projections, while retaining a view that underlying inflation is likely to hit 2% in the latter half of the three-year projection period through March 2027, and that risks to the outlook were "roughly balanced."

The same two board members dissented in favour of a hike as at the September meeting.

Investors and analysts had been watching for whether the BOJ's statement might read more hawkish, or if additional dissenters might emerge.

"Market disappointment on the lack of a hawkish tilt saw yen bulls bail ... but direction of BOJ policy normalisation is for hikes nonetheless," said Christopher Wong, a currency strategist at OCBC.

"Fed-BOJ policy divergence should help underpin the direction of travel for dollar-yen to the downside."