Nikkei climbs 2% on AI chip rally, Middle East uncertainty caps upside

Japan's Nikkei share average advanced 2% on Monday, tracking a rally in AI and chip-related stocks on Wall Street, though lingering uncertainty over the Middle East conflict kept a lid on gains.

The Nikkei stood at 66,927.61 as of 0126 GMT, while the broader Topix index edged up 0.44% to 4,092.93.

Chip-linked shares provided the main lift. Advantest climbed 5.3% and Tokyo Electron added 3.4%, while Ibiden, a supplier to AI bellwether Nvidia, rose 6.28%. Fujikura extended its recent surge with a 7% gain after the fibre-optic cable maker raised its annual net profit forecast on Friday.

Market strategists attributed the positive tone to easing expectations of a US Federal Reserve rate hike. US stocks closed at a record high on Friday after data showed the US economy unexpectedly shed jobs last month, dampening the case for tighter monetary policy at the Fed's September meeting.

However, geopolitical risks persisted. Iran said a deal with Oman defining new shipping lanes through the Strait of Hormuz was in its final stages, but added that the US must still meet other conditions, keeping traders cautious.

Recruit Holdings was untraded with a glut of buy orders after its revised annual forecasts beat market expectations; shares were bid at the daily limit high of 16,165, up 22.79% from the previous close.

Trading activity was subdued as Japan enters the Obon summer holiday period. Daiwa Securities strategist Daisuke Hashizume noted that with few market-moving cues expected toward the end of the week, the main indexes are likely to show little direction.

Among decliners, Uniqlo-owner Fast Retailing slipped 0.23%, while Mitsui Kinzoku, a maker of lithium-ion battery materials, tumbled 17% after its revised annual net profit forecast disappointed the market.