TOKYO - Tokyo stocks extended their strong advance on October 6, with the Nikkei 225 closing above 70,000 for the first time in three months as buying in artificial intelligence and semiconductor-related shares combined with easing concern over the government bond market. The Nikkei gained 737 points, or 1.05%, to 70,684, while the broader TOPIX rose 38.34 points, or 0.92%, to 4,183.56.
The Nikkei briefly climbed as high as 70,799 during the afternoon session, extending a rally that had lifted the index more than 1,600 points on October 5. The return above the 70,000 level at the close was the first since July 1.
Sentiment was supported by another strong session for U.S. technology stocks. The Nasdaq Composite reached a record closing high overnight, with Nvidia and other major technology companies advancing and giving Japanese semiconductor shares a favorable lead.
Advantest gained about 3.9%, extending its winning streak and reaching another record high on a stock-split-adjusted basis. Fujikura rose more than 5%, while TDK and other companies linked to AI infrastructure and electronic components also attracted buying.
SoftBank Group moved in the opposite direction, dropping about 3.1%, making it one of the weakest major contributors to the Nikkei despite the broader enthusiasm surrounding AI-related investment.
The rally was broad rather than confined to technology. About 30 of the Tokyo Stock Exchange's 33 industry groups advanced, and more than 1,150 Prime Market stocks finished higher compared with about 350 decliners.
Trading remained heavy, with Prime Market volume reaching about 2.14 billion shares and turnover totaling approximately 7.30 trillion yen.
A major turning point during the session came from the government bond market. Investors had entered the day cautious after Japanese government bond yields rose sharply in recent sessions on concern over inflation, government spending and Japan's increasingly expensive debt burden.
Demand at an auction of 10-year Japanese government bonds was stronger than expected, however, helping ease fears that investors were becoming reluctant to absorb new government debt. Demand at the auction was the strongest since May.
The favorable result helped Tokyo shares accelerate in afternoon trading, although long-term borrowing costs remained historically high. The yield on the benchmark new 10-year JGB was around 3.105% later in the Tokyo session.
Bond markets have become an increasingly important influence on Japanese equities as investors assess Prime Minister Sanae Takaichi's plans for growth-oriented fiscal spending against Japan's already large public debt.
Takaichi said in a policy speech on October 5 that the government would maintain fiscal sustainability and control bond issuance while pursuing what she describes as responsible and proactive fiscal policy.
Monetary policy also remained firmly in focus after Bank of Japan Governor Kazuo Ueda said it was becoming increasingly important to keep underlying inflation anchored around the central bank's 2% target.
Ueda said Japan's economy was recovering moderately and that economic and price developments remained broadly consistent with the BOJ's outlook. At the same time, he warned that inflation could overshoot because of higher raw material costs, strong AI-related demand, geopolitical risks and the weak yen.
The governor said financial conditions remained accommodative even after the BOJ's September rate increase and indicated that the central bank remained prepared to raise borrowing costs further as it gradually reduces monetary support.
The comments reinforced expectations that the BOJ's tightening cycle is not over. The central bank raised its policy rate to 1.25% in September, its highest level in 31 years, and markets are watching the October 29-30 policy meeting for indications of when another increase could follow.
The yen remained relatively weak despite those expectations. The dollar traded at around 158.07 yen in Tokyo during the afternoon after reaching roughly 158.24 yen earlier in the session.
Energy prices provided another positive factor for Japanese shares. Crude oil prices declined as Middle Eastern exports continued despite regional tensions and emergency releases from G7 petroleum reserves reduced immediate concern over shortages. Brent crude fell below $100 a barrel during trading, while U.S. West Texas Intermediate traded around $88.
Lower oil prices are particularly important for Japan because of its heavy reliance on imported energy. Reduced crude prices can ease pressure on corporate costs, household inflation and Japan's trade balance.
The Japanese government is also seeking greater regional cooperation on energy security. Japan plans to pursue agreements with Asian partners on measures to strengthen crude oil reserves through the Asia Zero Emission Community, with the issue expected to be discussed at a ministerial meeting in the Philippines.
For Tokyo markets, attention is now divided between the powerful momentum in AI-related stocks and the increasingly important question of how high Japanese interest rates and government bond yields will rise.
The Nikkei's recovery above 70,000 showed that investors remain willing to buy growth and technology shares despite elevated borrowing costs, but the reaction to the October 6 bond auction also demonstrated how closely the equity market is now tied to developments in Japan's debt market and the outlook for further BOJ rate increases.
Source: CNBC
