Japan's Stocks, Bonds, and Yen Rally on Mideast Ceasefire Declaration

• Nikkei surges 5% to a one-month high
• Yield on benchmark JGBs falls 3.5 basis points
• AI-related stocks among the biggest gainers, oil firms drop

By Rocky Swift and Satoshi Sugiyama

TOKYO, April 8 (Reuters) - Japan's blue-chip share average soared 5% to a one-month high while the nation's bonds and currency rallied on Wednesday as the U.S.-Iran ceasefire agreement drove crude oil prices sharply lower and eased concerns of an economic slowdown.

The Nikkei 225 Index .N225 jumped to 56,127.92, rising for a fourth day to its highest since March 5.

The yield on the benchmark Japanese government bond (JGB) JP10YTN=JBTC fell 3.5 basis points (bps) to 2.370% after hitting a 27-year high on Tuesday.

More than five weeks after the U.S. and Israel began aerial bombardments of Iran, U.S. President Donald Trump said he had agreed to a two-week ceasefire just before a deadline he had set for Tehran to reopen the critical oil shipping lane of the Strait of Hormuz.

Iran's Supreme National Security Council portrayed the deal as a victory, claiming Trump had accepted Iran's conditions for ending hostilities.

Pakistan's role as an intermediary between the U.S. and Iran gives the agreement a degree of credibility, contributing to market optimism, said Shingo Ide, chief equity strategist at NLI Research Institute.

"Pakistan reportedly asked Iran to lift the closure of the Strait of Hormuz, and it seems that the blockade was in fact lifted," Ide said. "There is growing hope that, if things continue this way beyond those two weeks, it could effectively transition into a real ceasefire."

U.S. crude futures sank more than 19% at one point, while the yen strengthened to a one-week high of 158.4 per dollar. Japan's economy is particularly vulnerable to oil prices because of its heavy reliance on imported energy.

JGB yields have surged as the crisis dragged on as concerns mounted that inflation pressures will spur the Bank of Japan to accelerate rate hikes and compel the government to expand stimulus. Interest rate swaps on Wednesday pointed to a near 52% chance of a BOJ interest rate increase this month, down from about 60% earlier this week, LSEG data showed.

Companies related to chips and the artificial intelligence sector, which has enormous energy demands, were the sharpest gainers among Japanese equities. Among Topix subsectors, mining and shipping were the sharpest decliners.

On the Nikkei, Furukawa Electric 5801.T led advancers with a 16.1% surge, followed by chipmaker Kioxia Holdings 285A.T, which added 15.6%. SoftBank Group 9984.T, a major investor in AI, jumped 5.8%.

Oil explorer Inpex 1605.T sank 6.3%, leading decliners, followed by Idemitsu Kosan 5019.T, down 4.1%, and shipping line Kawasaki Kisen 9107.T, which sank 3.9%.

"Given it remains unclear whether crude prices and supply will return to pre-conflict levels, caution will persist regarding how long oil prices will remain elevated," said Maki Sawada, an equities strategist at Nomura Securities.

"Given this lingering uncertainty, I believe there is a strong possibility of a pullback following this sharp rise."