Japan’s Nikkei hits 3-week high on AI-fueled robot maker rally

Japan’s Nikkei share average closed at a three-week high on Thursday, extending its rally for a third session, as robot makers led gains on bets that physical AI will fuel growth.

The Nikkei climbed 2.33% to 51,028.42, its highest close since November 13. The broader Topix closed at a record high, rising 1.92% to 3,398.21.

Robot maker Fanuc jumped 12.98% to top the Nikkei gainers, extending its 18.4% surge this week after announcing a partnership with US chip giant Nvidia to develop industrial robots powered by “physical AI”, which integrates artificial intelligence with robotic hardware.

“The market focus has shifted to robotics-related shares from chip stocks. This means investors keep looking for new themes,” said Kazuaki Shimada, chief strategist at IwaiCosmo Securities.

Fanuc’s peer Yaskawa Electric jumped 11.37%. Earlier this week, Yaskawa also announced a tie-up in physical AI with SoftBank Group. SoftBank Group jumped 9.18%.

Nabtesco, another robot maker, jumped 11.28%.

Chip-testing equipment maker Advantest slipped 0.77%.

“The market is not rising in a broad-based rally these days, but if investors sell some shares, they buy others, which means the money is rotating,” Shimada said.

Banks rebounded from the previous session’s declines, with Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group up 1.82% and 1.72%, respectively.

Drug maker Sumitomo Pharma fell 4.73% to become the biggest percentage loser on the Nikkei.

Of the more than 1,600 stocks trading on the Tokyo Stock Exchange’s (TSE) prime market, 79% rose, 17% fell, and 3% traded flat.

Meanwhile record-high yields on 30-year Japanese bonds helped support demand at an auction of the debt on Thursday at a time when the government has planned massive debt-fuelled stimulus.

The 30-year Japanese government bond (JGB) yield climbed to an unprecedented 3.445% before the debt sale. The benchmark 10-year yield jumped 4.5 basis points (bps) to 1.935%, the highest since July 2007.

Long-dated bonds, which are sensitive to fiscal worries, have been under pressure following the announcement of a spending plan by Prime Minister Sanae Takaichi that will be funded largely by new borrowing. Shorter-term notes, those most sensitive to central bank rates, were sold off on expectations of Bank of Japan rate hikes.

The Ministry of Finance’s (MoF) sale of about 700 billion yen ($4.51 billion) in 30-year JGBs had the highest bid-to-cover ratio, a measure of demand, since May 2019.

The 30-year JGB rallied after the auction, with the yield falling 3 bps to 3.39%.

The high yields led to strong demand among investors betting that rate levels may have topped out, according to Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

The government has shown its concerns over the sharp increase in JGB yields, with Chief Cabinet Secretary Minoru Kihara reiterating on Thursday that officials were closely watching market moves.

The BOJ is likely to raise interest rates at its meeting this month with the government expected to tolerate such a decision, sources told Reuters.

The 20-year yield reached 2.94%, the highest since June 1999. The five-year yield rose 2.5 bps to 1.41%, a level not seen since June 2008.

Investors expect the MoF will suggest cutting issuance of 30-year debt next fiscal year when it meets with primary dealers next week, according to Takashi Fujiwara, chief fund manager at Resona Asset Management’s fixed income division. Meanwhile, the BOJ may reduce purchases of JGBs in the 10- to 25-year sector, while maintaining buying support of the 30-year, he added.

Issuance of 20-year bonds will probably be unchanged, but “sales of 10-year JGBs will likely increase,” Fujiwara said.

Japanese stocks led gains for Asian markets on Thursday as an auction of government bonds drew strong demand from investors, while the US dollar recovered from a five-week low.

The Nikkei 225 rose 2.2%, led by a near-12% gain for industrial robot manufacturer Fanuc Corp, while MSCI’s broadest index of Asia-Pacific shares outside Japan was trading flat, weighed down by declines in Korea and New Zealand.

In early European trade, pan-region futures were up 0.6%, German DAX futures were up 0.6%, and FTSE futures were up 0.31%.

Tokyo’s latest debt sale drew the strongest demand in more than six years, helping to steady investor nerves after a selloff that has pushed yields on super-long-dated bonds to record highs and spilled over into global fixed income markets earlier this week. Bond yields rise when prices fall. “The 30-year JGB auction was unexpectedly strong,” said Shoki Omori, chief desk strategist for rates and FX at Mizuho in Tokyo.”

Reuters