Japan's Nikkei rallies as AI exuberance overrides Iran war concerns

Tokyo witnessed a rally in Japan’s Nikkei share average on Wednesday, as enthusiasm surrounding artificial intelligence (AI) overpowered concerns about potential escalation in the Middle East crisis. The benchmark Nikkei 225 index climbed 0.43% to 65,549.88, bouncing back from a modest decline.

The broader Topix index also experienced gains, rising 0.24% to 4,059.87. A recent survey conducted by Reuters revealed that business confidence among prominent Japanese manufacturers reached an all-time high since December 2021. This optimism was driven by strong demand in the semiconductor and data-center sectors, according to the survey.

Despite the US market facing headwinds due to worries over the Iran conflict and soaring oil prices, the Philadelphia Semiconductor Exchange Index still managed a 1.3% increase. Verizon's recent agreement with Corning to procure high-density optical fiber for AI infrastructure had a positive impact on Japanese cable manufacturers like Fujikura, according to Maki Sawada, an equities strategist at Nomura Securities.

Semiconductor and AI-related shares were performing exceptionally well, contributing positively to the Nikkei 225, Sawada noted. However, the Japanese yen's strengthening posed a challenge for equities, as the market had largely anticipated the Bank of Japan to raise interest rates soon, potentially leading to a shift in investors' behavior towards buying stocks on dips.

On the Nikkei 225, there were 109 stocks that gained value compared to 116 that declined. Furukawa Electric led the gainers with a 13.20% increase, followed by Fujikura, which rose by 8.75%, and Lasertec, which gained 6.56%. Conversely, Kyowa Kirin, Sumitomo Pharma, and Nikon experienced declines of 5.12%, 5.02%, and 3.63%, respectively, ranking among the largest losers in the index.