Nikkei set for 36% quarterly gain, biggest since 1965

Tokyo’s Nikkei 225 is on track for roughly a 36% gain over the past three months, the steepest quarterly advance in records dating to 1965, and has risen above 64,000 points. The index reached an all-time high earlier this year and continued higher through the quarter. Analysts link the advance to strong performance in artificial intelligence and semiconductor-related companies. Chipmakers and firms supplying AI infrastructure registered notable gains after earlier weakness, drawing renewed investor demand. The yen has weakened to about 162.27 per dollar, its lowest level since 1986. A softer yen increases the yen value of overseas sales for export-heavy firms when foreign revenue is converted back into yen, a factor cited by market participants in the quarter’s earnings outlook. Japan’s policy rate remains low while U.S. interest rates are higher, creating a yield gap that has put downward pressure on the yen. That gap has been associated with flows into risk assets and has been referenced by investors as a reason for heavier demand in equities tied to global demand. Retail investors in Japan were active during the rally, trading both stocks and cryptocurrencies; some investors view yen depreciation as a reason to hold scarce assets such as bitcoin. Market observers note that sudden reversals in the yen carry trade have previously prompted simultaneous sell-offs across equities and crypto. The near-term outlook will depend on technology sector performance and currency moves. A pullback in AI or semiconductor shares, official intervention to support the yen, or a shift in Bank of Japan policy that narrows the rate gap are scenarios that market participants say could remove part of the recent earnings boost for exporters and test recent gains. The quarterly rise is among the steepest short-term advances for Tokyo since records began in 1965.