Japan’s Nikkei rises as AI catch-up rally offsets yield worries

Fresh updates from the financial markets indicate that The Nikkei stock benchmark advanced after a three-day holiday as Tokyo’s market caught up with a global AI-led surge. Climbing bond yields and a climb in crude prices weighed on broader risk appetite, that stated.

The Nikkei 225 rose 1.8% to 66,167.25 as of 10:09 a.m. in Tokyo, while the broader Topix rose 0.2% to 4,097.42. Chip-related firms like Ibiden Co. and Socionext Inc. were among the Nikkei’s best performers, while software names like Baycurrent Inc. and Recruit Holdings Co. weighed. The Topix was led by electronics and machinery makers, with banks and services weak.

While Japan was closed for its Silver Week holiday, the global AI trade gathered steam thanks to early signs of success for Meta Platforms Inc.’s new AI agent and Alibaba Group Holding Ltd.’s unveiling of what it calls China’s most powerful AI chip. The Nasdaq 100 hit a fresh record high on Tuesday, although US equities pared upside on Wednesday amid inflation concerns.

“We expect the semiconductor-heavy Nikkei 225 to take cues from the resilience in global technology stocks,” stated Hu You, a senior research market observer at iFast Financial in Singapore.

Japan’s broad range of chip material makers makes it well positioned to benefit from renewed bullishness around AI, stated You. Ibiden is a particular winner as the chip package substrate maker is set to gain from the increasing complexity of AI semiconductors and demand for advanced packaging, she further noted.

But volatility in the yen, which is trading around 158 to the dollar, is likely to keep market participants wary, You stated.

Climbing global bond yields are another concern. Japan’s benchmark 10-year government bond yield rose eight basis points to 3.055% on Thursday morning, tracking moves in the Treasury market.

US Treasuries came under pressure Wednesday after US-Iran tensions and stronger-than-anticipated economic data stoked expectations of more The US central bank rate hikes. A rebound in crude prices additionally fueled inflation fears.

“Yields are reaching fairly attractive marks, and bond market participants may now start looking for opportunities to put money to work,” stated Ikuo Mitsui, a fund manager at Aizawa Securities. At the same time, the narrowing spread between long- and short-term yields may weigh on Japanese bank shares, he stated.

The broader Topix index is likely to face pressure amid uncertainty around the monetary policy outlook and the impact of elevated borrowing costs on the economy, Mitsui further noted. The Bank of Japan boosted its policy rate to 1.25% in a split-vote decision on Friday.