Japanese and South Korean stock markets both hit record highs, the yen fell to a nearly two-year low, and spot gold rose to touch $4,300.

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Japanese and Korean stock markets both hit record highs during early trading on Thursday, while the yen fell to its lowest level since July 2024. Asia-Pacific markets were seeking direction amid hawkish signals from the Federal Reserve and a positive US-Iran agreement.

The Nikkei 225 index expanded its intraday gains to 2%, surpassing the 71,000 mark for the first time in history; the Korea Composite Stock Price Index (Kospi) likewise set a new record.

One key factor boosting market sentiment was Trump’s signing of a temporary agreement with Iran, announcing the reopening of the Strait of Hormuz. Oil prices came under pressure, Brent crude fell over 1%, dropping below $79 per barrel, easing concerns about inflationary pressure.

However, hawkish signals from the Federal Reserve continued to weigh on the bond market, and the yen kept weakening, raising speculation about whether Japanese authorities would intervene.

Divergence in Asia-Pacific stocks, tech-heavy blue chips lead

At the equity level, Japan and Korea saw standout performance. The Nikkei 225 index expanded its intraday gains to 2%, breaking through the 71,000 level for the first time ever; the Topix rose 1.6%.

Kospi rose 0.89%, hitting an intraday high of 8,975.52, nearing the 9,000 threshold. Heavyweight SK Hynix surged 3.45%, reaching a new record high, while Samsung Electronics rose 1.23%. Small-cap Kosdaq index dropped 0.5%, lagging behind.

Australia's S&P/ASX 200 index was basically flat, while Hong Kong Hang Seng index futures were at 24,200, below the previous closing price.

In the US, all three major indices declined after the Fed meeting ended Wednesday. The Dow Jones Industrial Average fell 507.12 points, down 0.98%; the S&P 500 fell 1.21%; and the Nasdaq Composite fell 1.34%. The Dow reached a fresh intraday record high in the morning, but later gave up all gains due to the Fed’s hawkish signal.

However, US stock futures rebounded afterward. S&P 500 futures rose 0.8%, Nasdaq futures gained over 1%, after US stocks had tumbled over 1% on Wednesday due to the Fed’s hawkish stance. Spot gold also rebounded, touching $4,300/oz, up about 1% on the day.

Yen falls to nearly two-year low, intervention risk rises

The yen fell to 160.7 against the US dollar—the lowest level since July 2024—raising worries that Japanese authorities might intervene.

Bank of Japan Vice Governor Kazuo Ueda stated that the exchange rate is crucial for economic prospects, but is not a direct policy target. Investors reacted coolly, with widespread concerns that the Bank of Japan’s pace of tightening is insufficient to curb inflation and stabilize the yen—even though the central bank had earlier this week raised its benchmark rate to its highest since 1995.

Japan’s 10-year government bond yield rose 2.5 basis points to 2.620%, following US Treasuries selling. Australia's 10-year government bond yield also rose 3 basis points to 4.80%.

Fed’s hawkish turn, dot plot signals rate hike this year

The Federal Reserve ended its meeting Wednesday and kept the benchmark rate at the 3.5%-3.75% range, but the latest “dot plot” showed several officials anticipate rate hikes in 2026. The year-end median rate forecast was raised to 3.8% from 3.4% in March, which means at least one rate hike this year is now in view.

This is Fed Chair Kevin Warsh’s first policy meeting. At the press conference, Warsh stressed that inflation has been above the Fed’s 2% target for several years and reiterated the central bank’s commitment to restoring price stability, but refused to give specific guidance on next steps. Worth noting, Warsh himself did not submit a rate forecast, making dot plot interpretation more uncertain.

About half of FOMC members expect a rate hike this year. Traders have fully priced in an October hike and consider the probability of action in September to be rather high. The 2-year US Treasury yield, highly sensitive to policy expectations, jumped 13 basis points to 4.18% on Wednesday.

“Half the committee expects a rate hike this year; that’s a real warning to the market,” said Bob Michele, CIO and global head of fixed income at JPMorgan Asset Management. "I think they are preparing for a rate hike."

US-Iran agreement boosts risk sentiment, oil extends declines

On Wednesday, Trump signed a memorandum of understanding with Iran at Versailles Palace in France, declaring an end to war and reopening the Strait of Hormuz. A US official said the agreement has officially taken effect, but it’s unclear whether Iran has taken steps to fully reopen the strait immediately.

“Trump signing the memorandum of understanding after the G7 meeting is another important step in the process of reopening the Strait of Hormuz,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management. “This will further compress the energy risk premium, ease inflation concerns, and, after the Fed’s initial response, provide support for bond and stock markets.”

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