Japanese stocks jumped to the highest close in 6 weeks, supported by semiconductor stocks and pressure in the bond market

Japanese stocks jumped, on Thursday, to the highest close in more than 6 weeks, driven by a strong buying wave in semiconductor stocks after optimistic expectations from “Micron Technology” that strengthened confidence in the continuation of the spending boom on artificial intelligence. On the other hand, the bond market remained under pressure with the rise in long-term yields, continued fears of inflation and the path of tightening monetary policy, while foreign investors recorded the largest weekly sales of Japanese bonds in 6 months.

The Nikkei index rose by 3.3 percent to close at 68,956.72 points, recording the highest closing level since August 17, while the broader Topix index achieved limited gains of 0.57 percent to 4,131.98 points.

The jump came after the American company Micron Technology expected quarterly revenues to exceed market estimates, and revealed an increase in increases in its customers’ obligations under long-term supply agreements to $32 billion, an indication of continued strong demand for memory chips used in artificial intelligence applications.

Chip companies led the gains in Tokyo, with the shares of "Lasertech" for semiconductor inspection equipment jumping 11.14 percent to the highest level in two months, and "Advantest" for chip testing equipment rose 9.78 percent. Murata Manufacturing also rose 8.43 percent, and Kioxia, which specializes in memory chips, rose 5.55 percent.

Despite the strength of the rise, analysts warned against considering the move an indication of a sustainable rise for all stocks related to artificial intelligence. Wataru Akiyama, equity strategist at Nomura Securities, said that the results of companies such as Micron undoubtedly represent a positive factor, but attention should be paid to the possibility that some of the gains may be the result of exceptional news related to the results.

The stock movement reflected this caution; Of the 225 companies listed on the Nikkei, the shares of 108 companies rose, compared to a decline of 116, which shows that the significant rise in the index was concentrated to a noticeable degree in heavyweight stocks, especially technology and chips.

On the other hand, banking and insurance stocks came under pressure, after a mixed reading of the Bank of Japan's quarterly Tankan survey and cautious government statements regarding increasing borrowing costs led to a reduction in expectations of a successive rate hike during October. The banking sector decreased by 2.44 percent, and the insurance sector decreased by 2.31 percent.

Mitsubishi UFJ Financial Group shares fell 3.08 percent, while Daiichi Life Group fell 3.12 percent. The oil and coal sector also lost 2.97 percent with the decline in crude prices, in light of the recovery in exports from the Middle East and the sudden increase in US inventories.

The shares of the refining company “Idemitsu Kosan” fell about 4 percent.

In the bond market, the 10-year Japanese government bond yield rose 5 basis points to 3.11 percent, tracking the rise in US Treasury bond yields. The 20-year bond yield rose 4.5 basis points to 3.945 percent, while the 30-year bond yield rose 6 basis points to 4.2 percent.

On the other hand, the two-year bond yield, which is most sensitive to interest rate movements at the Bank of Japan, fell one basis point to 1.94 percent, continuing its decline after a relatively strong auction of bonds of this period.

The Tankan survey showed that Japanese business confidence reached its highest level in eight days during the period from July to September, amid high inflation expectations, which provides justification for further interest increases. A summary of the opinions of the Bank of Japan's September meeting also showed that some policymakers saw the need to accelerate the pace of tightening or push interest rates to the bank's target level sooner. But a representative of the Cabinet Office warned during the meeting of the economic impact of higher borrowing costs and called for caution about additional interest increases.

Ryutaro Kimura, chief fixed income strategist at BNP Paribas Asset Management, said that markets may interpret these statements as a signal that the Bank of Japan may move slowly in the face of inflation.

He added that any political pressures that curb the pace of the necessary rate hike may increase upward pressure on long-term returns through a rise in the inflation risk premium.

Investment flows data show that concern has extended to foreign investors. Japanese bonds recorded the largest weekly foreign exit in 6 months during the week ending September 26, with net sales amounting to 4.61 trillion yen ($29.16 billion).

Long-term bonds recorded outflows of 1.34 trillion yen, the largest since late July, while net foreign sales of short-term Treasury bills jumped to 3.27 trillion yen, the highest level in 6 months.

Foreign investors also sold Japanese stocks with a net value of 362 billion yen for the third week in a row. In the opposite direction, Japanese investors sold 684.5 billion yen of long-term foreign bonds, while buying foreign stocks worth 225.8 billion yen.