Japan’s Nikkei got an AI-powered boost on Monday, jumping over 2% to cross 70,000 for the first time in three months. Benchmark index Nikkei climbed 2.53% to 70,037.61 by the midday break, while the broader Topix gained 1.16% to 4,138.57. Chip-related companies emerged as the biggest drivers of Nikkei's rise. Tokyo Electron gained 5.7% and Advantest rose 4.5%, while technology investor SoftBank Group advanced 3.68%. Memory maker Kioxia, however, rose only 0.49%. Its shares remain nearly 50% below the record high reached in mid-June. "Investors scooped up AI-related stocks, but the market sentiment is muted compared with earlier this year when the Nikkei hit a record high," said Mamoru Shimode, chief strategist at Resona Asset Management. The AI rally will continue, but the markets will be more selective." Shimode said Kioxia’s limited gains could reflect selling by investors who had suffered losses in the stock. "Investors probably tried to buy Kioxia shares on the rise, but at the same time others who have losses in the shares sold stocks on a rally, which is why their gains are limited," Shimode said.
Wall Street gains lift Japan stocks
The advance in Japanese equities followed a rise in US stocks on Friday. Weaker-than-expected jobs data reduced expectations for a rate hike by the Federal Reserve at its policy meeting this month. Japanese financial stocks also moved higher. Mitsubishi UFJ Financial Group rose 0.99%, while Mizuho Financial Group gained 1.86%. Within the Topix, the growth share index climbed 1.46%, compared with a 0.89% rise in the value share index. The gains were mixed across the broader market. Of more than 1,500 stocks on the Tokyo Stock Exchange’s prime market, 53% rose, 42% declined and 3% were unchanged.
30-year bond yield hits record high
While equities rallied, Japan’s bond market came under pressure, with the 30-year government bond yield climbing to a record 4.235%. The move came as investors awaited Prime Minister Sanae Takaichi’s policy speech later on Monday, which is being closely watched for clues on the government’s policy stance. Investors were awaiting Takaichi’s remarks at the opening of an extraordinary parliamentary session. Her policy speech is being closely watched after local media reported that she was expected to pledge a nimble response to unexpected developments in the economy and financial markets. Markets are also scrutinising her comments for signs of a possible shift in her reflationary policy stance, following US pressure to stem the yen’s weakness. "The yields across the curve stand at this level based on expectations for a shift in Takaichi's policy, but if she says anything that could suggest she would keep her expansionary policy unchanged, that could send the bond yields higher," said Masahito Sugawara, a senior strategist at Daiwa Securities.
What is keeping bond market under pressure
Investors have become increasingly concerned that Takaichi’s ambitious spending plans could worsen Japan’s fiscal position. She took office a year ago, and the concerns have added pressure to the government bond market. The move was concentrated in longer-dated debt, while shorter-dated yields fell. The two-year JGB yield declined 1.5 basis points to 1.9%, while the 10-year bond yield dropped 2 basis points to 3.08%. The pressure on Japanese government bonds comes amid a broader sell-off in global government debt. Elevated energy prices, persistent inflation concerns and expectations of higher interest rates have pushed yields higher across global markets. US Treasury yields also reversed earlier declines over the weekend as investors assessed the weaker-than-expected September jobs report. The data tempered expectations for further Federal Reserve interest rate hikes.
