Asian stocks rise, Japanese shares hit record highs

KOSPI was the best performer in Asia, rallying 5.6% and coming back in sight of a record high

Asian stocks rose sharply on Monday as markets cheered Iran and U.S. agreeing to a preliminary peace deal, with Japanese shares hitting record highs before a Bank of Japan meeting this week.

Focus this week is on a host of key central bank meetings, with the BOJ and Reserve Bank of Australia set to decide on interest rates on Tuesday.

KOSPI was the best performer in Asia, rallying 5.6% and coming back in sight of a record high.

Shanghai Shenzhen CSI 300 and Shanghai Composite indexes gained 1.3% and 0.9%, respectively, while Hang Seng advanced 0.4%.

Straits Times index added 1.2%, while futures for Nifty 50 index rose 1.7%.

Iran and U.S. said they had agreed to a memorandum of understanding to end their war and reopen the Strait of Hormuz, with a deal set to be signed by Friday.

The MOU ramped up hopes for an immediate de-escalation in geopolitical tensions in the Middle East, with oil prices also dropping sharply on the prospect of fewer supply disruptions.

Lower oil bodes well for economies of major Asian countries, including India, Japan, and South Korea, given their heavy reliance on oil imports through Hormuz.

Japanese markets rallied in tandem with their Asian peers, with the Nikkei 225 and TOPIX rising 5.4% and 3.6%, respectively.

Both indexes hit record highs, amid a rally in tech and non-tech sectors.

But Japanese markets face an upcoming test, with the BOJ widely expected to hike interest rates by 25 basis points at the conclusion of a two-day meeting on Tuesday.

The central bank has repeatedly signalled that it will consider raising rates in June, especially in the face of rising inflationary pressures due to the Iran war.

Focus will be squarely on the BOJ’s outlook for the coming months, with ANZ analysts expecting a largely hawkish pivot.

Beyond the BOJ, focus on Tuesday will also be on a Reserve Bank of Australia meeting, where the central bank is expected to leave rates unchanged.

ASX 200 climbed 1.3% on Monday.