Nikkei surges nearly 2% to surpass 72,000-mark on Japan’s AI investment plans

Japan’s benchmark Nikkei 225 index surged nearly 2% on Monday to cross the 72,000-mark for the first time on the back of the country’s plan to invest heavily in artificial intelligence by 2040.

The Nikkei advanced 1.5% to 72,353 after touching an intraday high ‌of 72,832, while the ⁠broader Topix also ⁠gained 1.2% to 4,095. Notably, the Nikkei has gained 89% in the past year.

Japanese Prime Minister Sanae Takaichi’s cabinet has decided to invest 370 trillion yen by 2040 in 17 key strategic industries, including artificial intelligence (AI), aerospace, ocean and defense.

Earlier in March, the Takaichi Cabinet had held a “Japan Growth Strategy Meeting” and had unveiled a draft investment strategy for 17 areas, but the specific amount was not confirmed at that time.

According to reports, the area that the Japanese government is planning to foster first is physical AI (using AI on a real physical basis, such as robots and industrial machines). The company plans to invest 10.5 trillion yen (about 99.6 trillion won) by 2040.

The rally in Japanese tech stocks was also being fuelled by a sharp surge in the US chip shares overnight on Sunday. The US Philadelphia semiconductor index sharply outperformed the rest of the market with a 6.4% jump overnight as Intel’s shares rose to a record high and finished up 10.6%.

Besides the AI investment buzz, Japanese stocks also rallied on the back of strong progress in the US-Iran peace talks on Monday. The US and Iranian teams met in Switzerland and ended the first round of talks with an agreement on a roadmap towards a final deal to be reached “within 60 days”.

The talks are happening a few days after the two countries signed the Memorandum of Understanding (MoU) on reopening the Strait of Hormuz, which could ease oil supplies. Japan is seen as a key beneficiary of the ongoing oil price retreat as it is a top importer.

Going ahead this week, the Nikkei 225 Index will keep an eye on the upcoming macro data from Japan. Analysts would be waiting for the flash manufacturing and services PMI reports that are expected to show a jump in the two benchmarks in June.

Japanese yen near 40-year low

On Monday, the Japanese yen weakened to around 161.6 per dollar, nearing its lowest level since 1986. This has renewed speculation of possible intervention by Japanese authorities.

Japan’s finance minister said that officials stand ready to respond to excessive currency volatility if needed. Notably, the yen remained under pressure despite the Bank of Japan’s recent rate hike of 25 basis points to a multi-decade-high rate of 1%.