TOKYO - Tokyo stocks edged higher on June 29 as investors bought back selected shares after a sharp AI-led selloff, but gains were capped by caution over high technology valuations, Middle East tensions and a weakening yen that fell to its lowest level against the dollar since 1986.
The Nikkei 225 Stock Average closed at 69,468.11, up 107.23 points, or 0.15%, recovering from earlier losses as bargain hunters returned to parts of the market. The broader TOPIX rose 0.47% to around 3,982, showing firmer support across the wider market after last week’s volatility.
The rebound followed a steep decline in Tokyo shares on June 26, when investors sold AI and semiconductor-related names after a powerful rally that had pushed Japanese equities to record levels. Market attention remained focused on whether the pullback was a short-term correction or the start of a broader unwinding in high-growth technology shares.
AI-related stocks continued to dominate sentiment. SoftBank Group, Advantest, Tokyo Electron, Kioxia and other semiconductor-linked names remained central to trading after concerns emerged over stretched valuations and the cost of expanding AI infrastructure. Reuters reported that investors are increasingly questioning the returns from heavy AI spending, even as demand for memory chips and data center equipment remains strong.
The yen remained one of the main pressure points for Japanese markets. The dollar traded near 161.97 yen, taking the Japanese currency to its weakest level since 1986. The move kept investors alert for possible verbal warnings or intervention by Japanese authorities, especially as the yen’s weakness increases import costs for fuel, food and raw materials.
The currency move also complicates the outlook for the Bank of Japan. A weaker yen supports exporters and can lift corporate earnings when overseas profits are repatriated, but it also risks adding to inflationary pressure at a time when households are already facing higher prices. Investors are therefore watching whether the BOJ will signal another rate increase after raising its policy rate to 1% earlier this month.
In the bond market, attention remained on Japanese government bond yields and the widening gap between Japanese and U.S. interest rates. The yen’s latest slide reflected expectations that U.S. rates may stay high for longer, while Japan’s rate increases have so far been too gradual to narrow the yield gap enough to stabilize the currency.
On the policy front, the government’s latest economic strategy remained in focus. Japan is seeking to generate real economic growth of more than 1% and nominal growth above 3%, while encouraging more than 370 trillion yen in combined public and private investment by fiscal 2040. The plan points to continued emphasis on private-sector investment, wage growth and productivity, but it also highlights the delicate balance between supporting growth and containing inflation.
Global markets were mixed as investors watched developments in the Middle East and the Strait of Hormuz. Oil prices rose as traders monitored risks to energy supplies, although expectations of renewed talks between the United States and Iran helped limit panic. For Japan, higher crude prices and a weaker yen would be a difficult combination because the country depends heavily on imported energy.
U.S. markets provided some support after Wall Street rebounded, led by technology shares, but investors remained cautious about whether the AI trade can continue driving gains at the same pace. The Nasdaq’s rebound helped sentiment, while concerns about inflation and the possibility of further U.S. rate increases kept pressure on currency and bond markets.
The main points to watch next are whether AI and semiconductor shares can stabilize, whether the yen moves closer to levels that force a stronger response from Japanese authorities, and whether oil prices continue to climb as Middle East risks persist.
For Tokyo investors, the next stage of the market will depend on whether money rotates from overheated AI names into banks, exporters, domestic demand shares and infrastructure-related companies, or whether renewed selling in technology stocks drags the broader market lower again.
