Nikkei soars to 34-year high on chip shares, yen gets weaker as no US rate cuts boosts dollar
Business
The Bank of Japan is expected to resist rate hikes
TOKYO/SINGAPORE (Reuters/Web Desk) – Japan's Nikkei share average jumped to a fresh 34-year high on Tuesday as trading resumed after a long holiday weekend, with tech-related shares and strong corporate earnings supporting the benchmark stock index.
The Nikkei had climbed 2.50 per cent to 37,814.54 by 9:27am PST [0427 GMT], hitting its highest level since February 1990. Out of the index's 225 constituents, 185 gained while 39 declined.
The broader Topix was up 1.85pc.
Japanese markets were closed on Monday for a national holiday.
"The Nikkei rally has got an extra bump higher with ARM Holdings being the latest addition to the AI frenzy after strong results last week," said Charu Chanana, head of currency strategy at Saxo Markets.
Shares of Arm Holdings have surged since Wednesday, after the company forecast better-than-expected quarterly results, powered by demand for its technology to design chips for artificial intelligence features.
SoftBank Group Corp, which has a 90% stake in ARM Holdings, saw its shares rise 6.93pc on Tuesday.
Chip-sector giant Tokyo Electron Ltd gained 11.24pc, making it the second best performer.
Japanese equities also received a boost from Wall Street. Overnight, the Nasdaq briefly surpassed its record closing high from November 2021.
Among other top gainers, insurance firms MS&AD Insurance Group Holdings and Tokio Marine Holdings gained 11.42pc and 10.25pc, respectively. MS&AD Insurance was the best performer.
Otsuka Holdings was among the decliners, shedding 6.91pc after the company said its experimental drug failed to meet a primary late-stage trial goal in treating agitation associated with dementia due to Alzheimer's disease.
JGC Holdings Corp fell 17.72pc to sit at the bottom of the pack, followed by Nippon Paper Industries Co Ltd losing 14.58pc, and Mazda Motor Corp down by 7.5pc.
DOLLAR NEARS 150 YEN
The dollar flirted with the psychological threshold of 150 yen on Tuesday and held broadly steady ahead of a key reading on US inflation due later in the day.
The greenback last bought 149.53 yen, edging higher toward the closely-watched 150 level that analysts said would likely trigger further jawboning from Japanese officials in an attempt to support the currency.
The yen, which has already tumbled more than 5pc against the dollar year-to-date, is under persistent pressure as investors pare back their expectations of the scale and pace of the Federal Reserve's easing cycle. The yen bears are also being emboldened on signs the Bank of Japan will resist aggressively hiking rates even if it exits negative interest rates this year as markets are wagering.
"It is a bit of a yield story. Yields in the US are around their highs for 2024, so that's certainly helped dollar/yen," said Tony Sycamore, a market analyst at IG.
"It's also being supported by carry. With volatility so low and... for 2024, the markets have been pretty happy to add risk to their portfolios, and the carry trade is certainly part of that, which supports dollar/yen because of the yield differential."
All eyes were on January's inflation report for the United States due later in the day, which will likely provide further clarity on how soon, and by how much, the Fed could cut rates this year.
A batch of resilient US economic data, particularly a blowout jobs report out earlier this month, have heightened expectations that US rates are likely to stay higher for longer.
Ahead of Tuesday's data, the Federal Reserve Bank of New York said in its January Survey of Consumer Expectations on Monday that inflation a year and five years from now were unchanged at readings of 3pc and 2.5pc, respectively.
"Obviously, the US dollar has really benefitted from the resilient data we've seen recently, and we've sort of seen that the US economic outperformance story is really what's driving currency markets overall," said Kyle Rodda, senior financial market analyst at Capital.com.
"You're not really seeing that same level of strength in Europe and anywhere in Asia... and that's definitely showing the appeal for the greenback."
