* Nikkei and Topix hit record highs; JGB yields fall

* BOJ expected to raise policy rate to 1% this week

* Nikkei crosses 69,000 level for the first time

(Updates with closing prices)

By Satoshi Sugiyama

TOKYO, June 15 (Reuters) - Japanese equities leapt to record

highs while government bonds surged on Monday after news that

the United States and Iran had agreed on a framework for a deal

to end their war, fuelling relief across markets.

The U.S. and Iran on Sunday agreed to reopen the Strait of

Hormuz, a preliminary pact that sent oil prices falling but

leaves the fate of Iran's nuclear programme to further

negotiations.

The Nikkei 225 Index surged 5% to close at 69,317.50

after jumping as much as 5.6% and surpassing the 69,000 level

for the first time. The broader Topix climbed 3% to

3,999.60, after rising as much as 3.9%.

"This is simply the market reacting to the ceasefire deal -

nothing more, nothing less. Even a rise of around 4% does not

look unnatural," said Shingo Ide, chief equity strategist at NLI

Research Institute.

"The key issue going forward will be the substance of the

agreement itself and whether it is actually implemented and

upheld."

Japanese government bond yields slumped as a more than 4%

drop in crude oil prices eased inflation concerns.

The benchmark 10-year JGB yield fell 6 basis

points (bps) to 2.575%, while the 20-year JGB yield

slid 6 bps to a more than one-month low of

3.460%.

The two-year yield, the most sensitive to Bank

of Japan policy rates, lost 1 bp to 1.4%. The five-year yield

fell 3.5 bps to 1.865%. Yields move inversely to

bond prices.

In currencies, the Japanese yen strengthened 0.07%

against the greenback to 160.1, continuing to hover around the

160 level widely seen as a line in the sand for potential

official intervention.

The Bank of Japan is holding a two-day policy meeting on

Monday and Tuesday. It is widely expected to raise its policy

rate to a 31-year high of 1% and signal its readiness to keep

pushing up borrowing costs.

While Deputy Governor Shinichi Uchida, who will brief the

media on behalf of recently hospitalised Governor Kazuo Ueda,

isn't expected to veer far from the governor's script on the

central bank's rate-hike path, cautious commentary could

embolden yen bears.

On Monday, there were 172 advancers on the Nikkei index

against 51 decliners, with technology investment conglomerate

SoftBank Group pushing up the key gauge by roughly 537

points. Its shares jumped 10.3%. Among 33 industry sub-indexes

of the Tokyo bourse, air transport soared 6.7%, while

energy-explorer mining lost 1.2%.

The largest percentage gainers were capacitors and

electronic parts maker Taiyo Yuden ( TYOYF ), up 22.6%, followed

by semiconductor packaging and electronics firm Ibiden ( IBIDF )

gaining 19.1%. The biggest losers were internet advertising firm

CyberAgent ( CYAGF ), down 5.1%, followed by global soy sauce

maker Kikkoman ( KIKOF ), which lost 3.7%.

70,000 ON THE HORIZON FOR NIKKEI?

Japanese markets have been whipsawed by developments in the

Middle East. Japan, which depends on the region for about 95% of

its oil imports, has seen the yen come under pressure and bond

yields rise amid concerns that higher crude prices could lift

import costs.

Despite geopolitical turmoil, strategists have remained

bullish on Japanese equities on ‌a ⁠wave of optimism over AI

investment and the benefits of corporate governance reforms

pushed by the Tokyo Stock Exchange. The Nikkei is up about 31%

for the year.

NLI's Ide said the blue-chip index could temporarily rise to

70,000, but that level looks rich relative to fundamentals and

would need additional positive drivers, such as a full reopening

of the Strait of Hormuz, to hold.

"The valuation for Japanese equities is still low but there

is caution for the Nikkei's current level," said Hiroyuki Ueno,

chief strategist at Sumitomo Mitsui Trust Asset Management.

"Today's gain is probably partly led by demand for

short-covering. There are some investors who must buy Japanese

stocks today. But market players who are long on Japanese stocks

would not scoop up stocks at this high."