Japan's Nikkei 225 Hits All-Time High as Peace Hopes and BOJ Hike Bets Lift Stocks

The Tokyo Stock Exchange's benchmark Nikkei 225 index climbed to an all-time high in mid-June 2026, extending a powerful rally fuelled by easing geopolitical risk and a falling oil price. The index rose more than 3% in morning trading after closing at a record peak, mirroring a broader surge in Asian equities as President Trump signalled that a deal to end the US-Iran war could be signed imminently.

For Japan — one of the world's largest oil-importing economies, with almost total dependence on imported crude — the prospect of falling energy prices is especially significant. The US-Iran conflict and the resulting Strait of Hormuz disruptions had driven Japanese energy import costs sharply higher since late February, squeezing corporate margins and household budgets and pushing core inflation well above the Bank of Japan's 2% target. A peace deal that reopens Hormuz and lowers oil prices would directly relieve that pressure, improving the outlook for Japanese corporate earnings and consumer spending.

The timing of the rally is notable because it comes just days before the Bank of Japan's two-day policy meeting concluding June 16, at which the central bank is widely expected to raise its benchmark short-term policy rate from 0.75% to 1.0% — the highest level since 1995. A Bloomberg survey found 49 of 51 economists expect the hike, with a further increase to 1.25% anticipated by year-end. Ordinarily, a rate-hiking central bank might be expected to weigh on equities, but Japanese stocks have rallied on the view that the BOJ's normalisation reflects a healthy, inflation-supported economy emerging from decades of deflation — and that a stronger yen, driven by higher rates and falling oil, will ease imported inflation without derailing growth.

For Japanese insurers, the dual developments are doubly significant. A move to 1.0% policy rates lifts the investment yields available on the vast Japanese Government Bond portfolios held by life insurers, even as it pressures the mark-to-market value of existing holdings. The new economic value-based solvency framework, effective since March 2026, has prompted insurers to issue hybrid capital, reduce strategic equity stakes, and strengthen balance sheets ahead of the tightening cycle. A record-high equity market also boosts the value of insurers' remaining equity holdings and supports the financial sector broadly.