Nikkei Rebounds as IT Shares Rise Before Jackson Hole

The broader TOPIX rose 29.49 points, or 0.72%, to 4,146.71, extending its winning streak to seven sessions and again outperforming the Nikkei. Prime Market trading value totaled about 6.0259 trillion yen, staying relatively subdued as investors avoided aggressive positions before key U.S. policy comments. Gainers slightly outnumbered decliners, with 851 stocks rising and 651 falling.

The Nikkei opened slightly lower and briefly fell by about 100 points, but quickly turned higher after Nvidia’s strong earnings and sharp rise in U.S. trading boosted sentiment toward technology shares. The index climbed by more than 700 points at one stage in afternoon trading before losing momentum into the close.

The late fade reflected caution before Warsh’s speech at Jackson Hole, next week’s U.S. employment data and the G20 finance ministers and central bank governors’ meeting. Investors were willing to buy the technology rebound, but not enough to push the Nikkei decisively beyond the upper 66,000 range.

Nikkei CNBC-style market commentary centered on a market that was supported by U.S. tech strength but still divided beneath the surface. Nvidia’s shares rose 8.7% in regular U.S. trading after strong results, giving Tokyo’s semiconductor names an early tailwind. However, the gains were uneven, with some AI-related names rising strongly while others weakened sharply.

Advantest remained firm and continued to pull the Nikkei higher almost single-handedly, underscoring its large influence on the price-weighted index. The chip-testing equipment maker remains one of Japan’s most direct beneficiaries of advanced AI semiconductor demand.

Tokyo Electron started the day sharply higher but lost much of its gain by the afternoon. The move showed that investors were willing to react positively to Nvidia’s earnings but were quick to take profits in semiconductor equipment shares after recent volatility.

Taiyo Yuden was strong, rising nearly 4%, as electronic-component shares attracted renewed interest from investors seeking beneficiaries of AI servers, data centers and advanced devices.

Kioxia Holdings moved in the opposite direction, falling nearly 9% by the closing auction. The memory-chip maker has been one of Tokyo’s most volatile AI-related stocks, and its drop showed that Nvidia’s strong earnings were not enough to support all companies tied to the AI supply chain.

The weakness in Kioxia reflected a broader split in the memory trade. U.S. memory-related stocks such as Micron and SanDisk had weakened despite Nvidia’s gains, suggesting that investors were distinguishing between AI chip leaders and companies exposed to memory-cycle uncertainty, pricing pressure and heavy investment needs.

SoftBank Group also remained heavy, limiting the Nikkei’s advance. The company remains one of Tokyo’s most visible proxies for global AI investment sentiment through its exposure to OpenAI, robotics, digital infrastructure and other large-scale technology themes, but investors continue to weigh those ambitions against funding requirements and debt costs.

Fujikura fell about 3%, showing that selling also reached some second-wave AI infrastructure names. The company has benefited from demand for optical fiber, cables and high-speed data-center networks, but its sharp gains earlier in the year have made it vulnerable whenever investors trim crowded AI positions.

The mixed performance of AI-linked shares showed that the market is becoming more selective. Strong Nvidia results are no longer enough to trigger automatic buying across the whole Japanese semiconductor complex. Investors are looking more carefully at valuations, earnings visibility, supply-chain bottlenecks, capital-spending discipline and each company’s direct exposure to AI demand.

Outside the AI and semiconductor complex, the market showed broader strength. Automakers were firm, with Toyota rising about 1.8% and Honda up about 2.5%. The gains reflected continued support from the weak yen, expectations for solid overseas earnings and hopes that trade-policy pressure on Japanese vehicle exports will ease.

Recruit Holdings rose nearly 5% and renewed its listing high, extending a strong recent run. The company’s strength helped support sentiment toward large-cap service and technology-related shares outside the semiconductor sector.

Securities and bank shares also advanced. Nomura Holdings rose around 2%, while Mitsubishi UFJ Financial Group gained about 1%. Financials remain supported by expectations that Japan’s interest-rate environment will continue normalizing as the Bank of Japan moves away from decades of ultra-low rates.

Higher rates can improve bank lending margins and investment income, although the sector remains sensitive to sudden changes in government bond yields and valuation losses on securities holdings. On August 28, financials helped give TOPIX a more stable tone than the Nikkei.

Software-related shares were among the clearest areas of strength. NEC, Fujitsu, Nomura Research Institute, Obic and Money Forward all rose as investors reacted to a rally in U.S. software stocks.

Salesforce surged 22% in U.S. trading after results and guidance exceeded market expectations. CloudStrike and Okta also rose sharply after reporting stronger-than-expected earnings or forecasts, helping reverse some of the pessimism that had weighed on software shares earlier in the year.

The U.S. software rally changed the tone around artificial intelligence. Earlier in the year, investors had worried that AI would reduce demand for software companies by replacing some of their services or lowering the value of traditional software platforms. Recent earnings have encouraged a different view: that software companies may be able to use AI to improve productivity, margins and customer demand.

That shift helped Japanese software and systems shares. NEC and Fujitsu benefited from expectations for digital transformation, system integration, cloud services, cybersecurity, public-sector technology upgrades and corporate AI adoption. Nomura Research Institute, Obic and Money Forward also attracted buying as investors reassessed software as a potential AI beneficiary rather than an AI casualty.

The Growth 250 Index rose more than 3% and reached its highest level in about three months. Its strength stood out against the more restrained move in the Nikkei and reflected renewed appetite for smaller growth shares.

Part of the buying was linked to expectations for TOPIX reform. The next stage of the TOPIX reshuffle is approaching, with the end of August serving as a reference point for determining potential new constituents. Investors are speculating that some Growth and Standard Market stocks could be newly added to the index.

Market participants pointed to names such as GNI Group, Trial Holdings, Pksha Technology, MTG and Timee as possible candidates that could attract buying ahead of TOPIX inclusion. Such expectations can bring short-term speculative demand because index inclusion may eventually generate passive-fund buying.

The strength in Growth 250 also showed that investors were willing to buy beyond the largest stocks when there was a clear technical or index-related catalyst. However, the move was partly speculative and could reverse if inclusion expectations are not met.

Esol, a developer of basic software, was temporarily suspended from trading from 3:03 p.m. after the Tokyo Stock Exchange said it was confirming the details of media reports concerning a tender offer. The suspension added a company-specific event to an otherwise macro- and technology-driven session.

The yen traded around the 159-yen range against the dollar, keeping currency risk at the center of investor attention. The Japanese currency remains stronger than its late-July lows near 164 but has not recovered enough to remove imported inflation pressure.

A weak yen supports exporters by increasing the yen value of overseas earnings, but it raises the cost of imported fuel, food, raw materials, chemicals and consumer goods. That makes the currency a direct issue for households as well as companies.

Japan’s foreign-exchange policy remained in focus after last month’s joint U.S.-Japan intervention. Finance Minister Satsuki Katayama said she would attend next week’s G20 finance leaders’ meeting in Asheville, North Carolina, where markets will watch for any meeting with U.S. Treasury Secretary Scott Bessent.

Katayama said the joint intervention statement with Bessent remained strong, reinforcing the view that authorities do not want to see another rapid yen decline. The G20 meeting could become an important venue for signals on currency coordination, BOJ policy and Japan’s broader economic strategy.

The Bank of Japan’s September 17-18 meeting has become the main domestic policy event. Tokyo inflation data released on August 28 strengthened the case for another rate increase, with core consumer prices in the capital rising 1.8% from a year earlier in August.

The Tokyo core CPI figure was slightly above market expectations and marked the third straight monthly acceleration. Because Tokyo inflation is considered a leading indicator of nationwide price trends, the data reinforced expectations that the BOJ may raise its policy rate from 1% to 1.25% next month.

An index excluding both fresh food and fuel rose 2.0% in August, up from 1.8% in July. That measure is closely watched by the BOJ because it gives a clearer view of underlying inflation and shows whether price increases are spreading beyond volatile food and energy categories.

The data followed comments from BOJ Deputy Governor Ryozo Himino, who warned of mounting inflation risks and stressed the importance of timely rate increases. Himino did not pre-commit to a September move, but he also did not push back strongly against market expectations for a rate hike.

The BOJ kept policy unchanged at its July meeting, but board member Hajime Takata dissented in favor of raising rates to 1.25%. Since then, stronger inflation signals, high producer prices, a weak yen and elevated oil prices have kept pressure on policymakers.

Japanese government bond yields remained near elevated levels. The 10-year JGB yield briefly reached 2.930% during the session, keeping it close to the psychologically important 3% level.

That level matters because it would represent a major shift from decades of ultra-low rates. Higher yields increase the government’s debt-servicing costs, raise the discount rate applied to equity valuations and make highly valued technology shares more vulnerable to earnings disappointment.

The recent rise in U.S. long-term yields also weighed on investor psychology. The U.S. Treasury’s decision to expand debt buybacks was seen as evidence that American authorities are becoming more alert to the impact of higher yields. Investors are now watching whether the Federal Reserve shares that concern.

Warsh’s Jackson Hole speech was therefore the day’s main overseas event. Markets did not expect a clear commitment on the next interest-rate move, but investors were looking for clues on how the Fed views long-term yields, inflation pressure and the path of policy.

The previous U.S. session provided a mixed but generally supportive backdrop. The Dow Jones Industrial Average rebounded modestly, while the Nasdaq rose 1.5% and the Philadelphia Semiconductor Index climbed more than 2%. That helped Tokyo recover from its opening weakness, but the approach of Jackson Hole limited risk-taking into the close.

The central bank calendar also matters for Japan because U.S. policy affects the dollar-yen exchange rate. A hawkish Fed message could push U.S. yields higher, support the dollar and pressure the yen. A softer tone could ease imported-inflation pressure in Japan but may also reduce the currency tailwind for exporters.

The BOJ’s challenge is that inflation pressure is rising while parts of the real economy remain fragile. Recent GDP data showed that Japan grew in the April-June quarter, but private consumption slipped and capital spending weakened. That makes a September rate hike more difficult to communicate.

For households, inflation remains the most important economic issue. Wage growth has improved, but consumers continue to face higher prices for groceries, gasoline, electricity, transport and services. Many households judge the economy not by headline GDP but by whether wage gains cover daily expenses.

TV Tokyo’s broader business themes remain closely tied to this market. Companies are still deciding how much of their higher labor, energy, logistics and materials costs can be passed on to consumers, while households remain cautious about spending on discretionary goods and services.

A Teikoku Databank survey showed that only 39.9% of firms were able to pass rising costs on to consumers in July, down from 42.1% in June. That suggests smaller companies and firms with limited bargaining power remain under pressure even as inflation spreads through the economy.

The pass-through issue is important for the BOJ. If companies cannot raise prices enough to protect margins, higher input costs could weaken profits and hiring. If they can raise prices too easily, inflation may become more persistent and force the central bank to tighten faster.

Prime Minister Sanae Takaichi’s government is trying to balance household relief with fiscal credibility. Reuters reported that Takaichi aims to cap new government bond issuance at around 40 trillion yen for the fiscal 2027 budget, even as ministries submit large spending requests.

The target would still exceed the 32.7 trillion yen planned for fiscal 2026, and economists view it as slightly expansionary. Markets are therefore watching whether the government can support households without worsening concern over public debt.

Takaichi has also suggested the possibility of using Japan’s foreign-exchange reserves to help finance a proposed cut in the consumption tax on food. The measure would aim to reduce living-cost pressure, but it could create an annual revenue shortfall of around 5 trillion yen.

The government’s longer-term strategy remains focused on more than 370 trillion yen in public and private investment through fiscal 2040. The plan targets semiconductors, artificial intelligence, energy security, defense, shipbuilding, robotics, space and other strategic sectors.

That agenda supports many of the industries investors favor, including chip equipment, data-center infrastructure, materials, power systems and advanced manufacturing. But rising bond yields have increased scrutiny of how the government will finance both investment and household relief.

Oil prices offered some relief. Brent crude traded around $89.33 a barrel and was headed for a weekly decline of more than 5% after Iran and Oman agreed on managing traffic through the Strait of Hormuz and sharing revenues.

For Japan, lower oil is important because the country imports most of its energy. A sustained drop in crude prices would ease pressure on gasoline, electricity, aviation fuel, logistics, chemicals and manufacturing.

However, Middle East risk remains unresolved. Washington has shown little interest in reviving direct talks with Tehran, and any renewed disruption to shipping routes could quickly push energy prices higher again.

What to watch next: whether the Nikkei can hold above 66,000 and move back toward 67,000, whether TOPIX can extend its seven-day winning streak, and whether software-related shares continue to attract buying alongside AI hardware names.

Investors will also watch whether the Growth 250 rally continues into the end of August as TOPIX reform expectations build. Speculative buying linked to potential index inclusion could support selected smaller shares, but it may also leave them vulnerable to sharp reversals.

Kioxia, Advantest, Tokyo Electron, SoftBank Group, Fujikura and Furukawa Electric will remain the main gauges of Japan’s AI trade. The August 28 session showed that Nvidia can still lift sentiment, but not every AI-related stock benefits equally.

The yen around 159 to the dollar remains a central macro signal. A move beyond 160 would revive intervention speculation and strengthen expectations for a September BOJ rate hike, while a stronger yen would ease imported inflation but weigh on exporters.

Tokyo inflation has increased pressure on the BOJ, making comments from Governor Kazuo Ueda and Finance Minister Katayama at next week’s G20 meeting especially important.

The 10-year JGB yield’s distance from 3% will remain another key domestic signal. A renewed rise could pressure growth stocks and fiscal policy, while a retreat would help support risk appetite.

Other key factors will be Warsh’s Jackson Hole speech, U.S. job data next week, Brent crude near $90, South Korean semiconductor shares, potential TOPIX reform buying and Japan’s next nationwide inflation figures. August 28 showed that Tokyo can still rise on technology and software strength, but investors are increasingly focused on whether the BOJ, the yen and bond yields will allow the rally to continue.

Source: CNBC