Japan's Nikkei extends rally on support from AI-related shares

By Satoshi Sugiyama

Japan's Nikkei share average extended its rally into a third straight session on Wednesday, supported by AI-related shares, although investor caution amid market volatility capped gains.

The Nikkei TVC:NI225 rose 0.6% to 70,497.49 by lunchtime, after gaining as much as 2.7% earlier. The broader Topix TSE:TOPIX climbed 0.4% to 4,010.68.

"Domestically, buying is likely to lead in chip-related stocks, suggesting the market will open higher," analysts at Tokai Tokyo Intelligence Laboratory said in a note. "That said, the Nikkei average rose sharply at the open the previous day before quickly losing momentum, so investors should remain wary of short-term overheating and profit-taking."

AI-related shares that have underpinned the Nikkei's recent rally remained firm. Capacitor and electronic parts maker Taiyo Yuden TSE:6976 topped the blue-chip index with a 13.4% jump, while Sumco TSE:3436, a leading supplier of silicon wafers for semiconductors, gained 11.3%. Ibiden TSE:4062, a semiconductor packaging and electronics firm, rose 9.8%.

Kawasaki Heavy Industries TSE:7012 shares were volatile, briefly rising more than 5% before falling 7.4%, after Reuters reported the company was finalising plans to raise about 200 billion yen ($1.23 billion) through new shares and convertible bonds to fund capital expenditure.

Among decliners, department store and retail group J. Front Retailing TSE:3086 was the Nikkei's worst performer, dropping 10.8% after disappointing March-May earnings. Furukawa Electric TSE:5801, a cables and components maker, lost 7.2%, while Sapporo Breweries TSE:2501 slipped 5.4%.

There were 90 advancers on the Nikkei index against 135 decliners.

Sentiment among big Japanese manufacturers improved in the three months to June to levels unseen since 2018, the Bank of Japan's Tankan survey showed on Wednesday. Still, companies expect business conditions to worsen over the next three months as they brace for rising costs and potential supply constraints stemming from the Middle East conflict.

($1 = 162.6600 yen)