Long-term yields and the direction of AI-related stocks will be the focus of Japan's domestic equity market next week. The Nikkei 225 ended last week sharply higher, and market activity is attracting attention against the backdrop of the US FOMC's decision and the Bank of Japan's rate hike.
Japanese stocks ended last week with the Nikkei 225 at ¥66,364.20, up ¥2,352.86 from the previous week's close. Gains in US semiconductor stocks and buying of AI-related stocks were cited as drivers, while concerns about rising long-term yields weighed on the market at times before it rebounded toward the end of the week.
The US Federal Reserve's Federal Open Market Committee (FOMC) decided to raise rates for the first time in about three years, drawing attention to the high level of US long-term yields. The Bank of Japan also decided to raise rates, but the presence of 2 dissenting votes led the market broadly to view the decision as dovish-leaning.
Although long-term yields in both Japan and the US are expected to remain a drag this week, buying of AI- and semiconductor-related stocks is also expected to continue. As concerns about restrictions on AI development eased following the US-China summit, the approach of the cum-rights date may also support the market.
Demand for dividend-reinvestment purchases is expected to emerge ahead of the final cum-rights date at the end of next week, warranting attention to supply and demand conditions. Depending on the trajectory of long-term yields in Japan and the US, market conditions in the second half of the fiscal year may change.