AI Rally, Weaker Yen Set the Stage for Japan’s Market Return

(Bloomberg) -- Japanese stocks look poised to catch up with a global AI-led rally when trading resumes on Thursday, while a weaker yen keeps currency intervention risk in focus.

Nikkei 225 futures traded in Osaka were about 1.4% higher than where the underlying gauge settled on Friday. Local markets have since been shut for the Silver Week holiday. But the optimism may be tempered by a drop in US equities overnight, following a rally in oil prices, with a deepening selloff in Treasuries.

Meanwhile, the yen, which looked vulnerable to declines during the break, is steady after a four-day loss versus the dollar. The yen's recent declines may provide a short-term boost to exporters' shares but may keep traders on alert for risk of further intervention in currency markets. The yen traded around 157.28 per dollar at 6:42 am in Tokyo on Thursday.

The picture is more mixed for bond traders, amid uncertainty over the Bank of Japan's monetary policy outlook.

The global AI trade has gathered steam this week, thanks to early signs of success for Meta Platforms Inc.'s new AI agent and Alibaba Group Holding Ltd.'s unveiling of what it calls China's most powerful AI chip. The advances have helped revive enthusiasm after recent calls by top AI firms in the US to slow the pace of development had raised concerns about the sector's growth. US equities pared some gains on Wednesday amid inflation concerns.

"The renewed global AI rally, a mild improvement in risk sentiment and softer oil prices give Japanese equities room for a catch-up move, while taking some immediate pressure off the inflation-and-rates story," said Hebe Chen, a market analyst at Vantage Global Prime.

While oil extended gains Thursday on renewed tensions between the US and Iran, prices are still below Friday, when Japan's stock market last traded.

Chip-equipment makers like Tokyo Electron Ltd. and Advantest Corp. are likely to be among the biggest winners on Thursday, said Hu You, a senior research analyst at iFast Financial in Singapore. She also expects chip package substrate maker Ibiden Co. to gain, along with memory maker Kioxia Holdings Corp.

"A semiconductor- and AI-led rally could provide a broad-based lift across the Japanese equity market," she added. A rally in chipmakers drove the Nasdaq 100 Index to its first record since June on Tuesday.