Nikkei Climbs as AI Demand Offsets Middle East Worries

Japan's benchmark Nikkei 225 share average rebounded from an early slide to close 0.43% higher at 65,549.88 on Wednesday. The broader Topix index also gained 0.24%, settling at 4,059.87. The recovery came as renewed enthusiasm for artificial intelligence-related stocks outweighed worries about a potential escalation in the Middle East conflict.

Market sentiment was supported by data showing business confidence among large Japanese manufacturers improved in September, reaching its highest level since December 2021. The uptick was attributed to robust demand linked to semiconductors and data-centre infrastructure.

While US markets were pressured overnight by concerns over the Iran situation and rising oil prices, the Philadelphia SE Semiconductor Index still managed a 1.3% gain. This helped fuel buying in Japanese tech names. News of a multi-billion-dollar agreement between Verizon and Corning for high-density optical fibre used in AI infrastructure also boosted Japanese cable makers like Fujikura.

"Semiconductor and AI-related shares are performing strongly, lending a positive contribution to the Nikkei 225," noted Maki Sawada, an equities strategist at Nomura Securities.

Equities also had to contend with a stronger yen, which hovered near a seven-month high on expectations that the Bank of Japan could accelerate rate hikes as soon as its meeting next week. Analysts at Sony Financial Group suggested that with yen appreciation largely priced in, the market trend may shift toward buying on dips once initial selling subsides.

Advancers on the Nikkei slightly trailed decliners, with 109 stocks rising against 116 falling. Leading the gains were Furukawa Electric, up 13.20%, followed by Fujikura, which added 8.75%, and Lasertec, which rose 6.56%. On the losing side, Kyowa Kirin fell 5.12%, Sumitomo Pharma dropped 5.02%, and Nikon slipped 3.63%.