Nikkei Hits Record Highs as AI Rally Drives Massive Weekly Gains

Japan's Nikkei 225 index has delivered its most significant weekly performance in nearly two years, propelled by a massive surge in artificial intelligence-related stocks. Despite geopolitical uncertainties in the Middle East, the index achieved consecutive record highs this week, marking a historic period of growth for Japanese equities.

AI and Semiconductor Boom Drives Nikkei Surge

The Nikkei index recorded a remarkable 7.9% rise for the week, marking its sharpest weekly gain since August 2024. This rally was characterized by seven straight sessions of gains, fueled largely by investor enthusiasm for the artificial intelligence sector.

On Friday, the index spiked to a record high of 71,952.99 before closing slightly lower at 71,250.06, representing a 0.28% daily increase. The momentum was clearly visible in the semiconductor and tech sectors, where chip-related stocks like Advantest rose by 4.75% and Kioxia climbed by 12%. This sectoral strength highlights how central the global AI narrative has become for Japanese market participants.

Fujikura Leads Growth with Massive Profit Forecast Upgrade

One of the standout performers of the week was the fibre-optic cable maker Fujikura, which surged 15.69% to hit a daily limit high of 5,161 yen. This massive jump followed a significant upgrade in its annual net profit forecast.

Fujikura raised its annual net profit guidance to 229 billion yen ($1.42 billion), a substantial leap from its initial forecast of 156 billion yen. This upward revision, driven by the demand for AI data centre materials, also lifted its peer, Furukawa Electric, which surged by 15%. The disparity between Fujikura's success and the broader cautiousness regarding fibre-optic makers underscores the intense demand for infrastructure supporting AI expansion.

Geopolitical Tensions and Profit Booking Temper Gains

While the Nikkei enjoyed its rally, the broader Topix index fell 0.57% to 4,044.96, dragged down by weakness in the banking sector. Large lenders such as Mitsubishi UFJ Financial Group and Mizuho Financial Group saw declines of 2.85% and 4.42%, respectively.

The market also faced headwinds from sudden geopolitical uncertainty. News that U.S. talks with Iranian negotiators regarding a Middle East peace pact would not take place on Friday added volatility. Daisuke Hashizume, senior strategist at Daiwa Securities, noted that the sudden halt in planned negotiations suggested a "tough road ahead" for conflict resolution. Additionally, with the U.S. market scheduled to close on Friday, many investors opted to lock in profits from the recent rally before the weekend, preventing the Nikkei from maintaining its record-breaking peak.

Key Takeaways

  • AI Sector Dominance: The Nikkei’s 7.9% weekly gain was primarily driven by AI-related semiconductor and data centre infrastructure stocks.
  • Corporate Earnings Impact: Fujikura's significant upgrade in profit forecasts to 229 billion yen acted as a major catalyst for the tech and materials sectors.
  • Geopolitical Headwinds: Uncertainty regarding Middle East peace negotiations and profit-taking ahead of a U.S. market holiday limited the Nikkei's final daily gains.