Japan's Nikkei extends rally on AI boost, but US-Iran impasse weighs

TOKYO: Japan’s Nikkei share average closed higher for a third consecutive session on Wednesday, supported by AI-related shares, though fresh hurdles in U.S.-Iran peace negotiations and investor caution in a volatile market limited gains.

The benchmark Nikkei 225 advanced 0.59% to close at 70,474.96, paring an earlier surge of as much as 2.7%. The broader Topix ended 0.42% higher at 4,011.50.

“Domestically, buying is likely to lead in chip-related stocks, suggesting the market will open higher,” analysts at Tokai Tokyo Intelligence Laboratory said in a note.

“That said, the Nikkei average rose sharply at the open the previous day before quickly losing momentum, so investors should remain wary of short-term overheating and profit-taking.”

Tehran said on Tuesday it would not meet with top U.S. envoys who had flown to the region, with the two sides still far apart on a framework that would fully open the Strait of Hormuz.

Market breadth was mixed, with 96 advancers in the Nikkei 225 against 127 decliners, while two were unchanged.

Chip-related shares led gains in the benchmark, with Sumco surging 17.37% to its highest close since October 2007, while Taiyo Yuden jumped 12.43% to an all-time high. Screen Holdings rose 9.46%, also reaching a record high.

Shares of Kawasaki Heavy Industries swung sharply, briefly rising more than 5% before closing 7.66% lower on the day. Reuters reported the company was finalising plans to raise about 200 billion yen ($1.23 billion) through new shares and convertible bonds to fund capital expenditure.

Among decliners, department store operator J. Front Retailing was one of the Nikkei’s worst performers, dropping 7.6% after disappointing March-May earnings.

Sentiment among large Japanese manufacturers improved in the three-month period ended June to its highest levels since 2018, the Bank of Japan’s Tankan survey showed on Wednesday.

Companies, however, expect business conditions to worsen over the next three months as they brace for rising costs and potential supply constraints stemming from the Middle East conflict.