Japan Stocks Surge on AI Frenzy and Weakening Yen
Japan's stock market is experiencing a rally fueled by global tech optimism and AI hype. The Nikkei 225 rose 1.6% in the five sessions through Sept. 18, its best weekly advance in about a month. This surge in equities comes as the yen weakens, with the currency trading near 157.88 per dollar on Wednesday evening.
The strength of global tech stocks is driving this momentum, with positive initial reviews of Meta Platforms Inc.'s new AI assistant and Alibaba Group Holding Ltd.'s introduction of China's most powerful AI chip contributing to renewed risk appetite. The Nasdaq 100 reached a new all-time high on Tuesday - its first since June - and the AI-fueled momentum is now washing over into Japan.
The yen's decline has sparked speculation about potential intervention from the Bank of Japan, with market participants contacted by the central bank to check exchange rate levels. This move is often seen as a prelude to action. Options sentiment has turned more bullish on the currency, reflecting stronger demand to hedge against the risk of Japanese authorities stepping in.
The BOJ's recent interest rate hike and its indication that it remains open to further tightening could weigh on JGBs, despite supportive signals from Brent crude and US Treasury yields. iFast's Hu You expects pressure at the front end: 'The BOJ hike establishes a higher floor for short-term interest rates, so it is fundamentally negative for JGB prices at the front end.'
Global politics is also playing a role, with President Donald Trump and Chinese leader Xi Jinping set to meet. Japanese Prime Minister Sanae Takaichi has advanced her United Nations address to meet with Trump ahead of his talks with Xi.