The rate hike reflected the central bank's efforts to tackle inflation pressures and support the yen, which has remained weak. However, some policymakers expressed caution, arguing that risks to economic growth and employment remain greater than inflation concerns.

Investors also kept an eye on geopolitical developments, as hopes grew that the US and Iran could reach a peace agreement later this week, potentially leading to the reopening of the Strait of Hormuz and easing concerns over global trade and energy supplies.

Technology stocks led the market higher, with notable gains in Kioxia Holdings, Taiyo Yuden, Murata Manufacturing, Advantest, and Fujikura.

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