Nikkei Rises 1.1% for Second Day as SK Hynix Blowout Earnings Revive AI Trade, but Most Tokyo Stocks Fall

Japan's Nikkei 225 rose for a second straight session on Wednesday as blowout earnings from South Korea's SK Hynix revived enthusiasm for artificial intelligence-related stocks. The gains were narrow, though, and most Tokyo shares fell.

The Nikkei closed up 685.82 points, or 1.08%, at 63,954.19, building on Tuesday's 1.7% rally. The broader Topix index slipped 0.14% to 3,991.71.

Market breadth was weak. Among Nikkei components, 139 stocks fell and 85 rose. The index was lifted by a handful of heavily weighted technology shares, which have an outsized influence on the price-weighted benchmark.

SK Hynix sparks chip rally

The main catalyst came from Seoul. SK Hynix, the world's leading maker of high-bandwidth memory for AI processors, reported third-quarter operating profit more than seven times higher than a year earlier, at 83.3 trillion won. Its operating margin reached 80%.

The company also announced plans to return about 100 trillion won, roughly $75 billion, to shareholders this year through dividends and share buybacks. It said it expects memory demand to exceed supply through 2030.

The results lifted chip stocks across Asia. South Korea's KOSPI soared 6.6% to reclaim the 6,000 mark. In Tokyo, investors bought semiconductor equipment and AI-related shares, which supply the global chip industry.

Nomura Securities strategist Maki Sawada said investors were rewarding "increased profitability at AI-related companies." She noted that stocks tend to fall when companies announce heavy spending or fundraising, showing that investors are focused on returns from AI investment rather than the spending itself.

Narrow rally

The divergence between the Nikkei and the Topix highlighted a theme seen throughout much of this year: gains concentrated in a few large technology names. Chip-related heavyweights such as Advantest, Tokyo Electron and SoftBank Group carry large weightings in the Nikkei.

The Nikkei snapped a three-day losing streak on Tuesday, when it jumped 1.73% after Anthropic, the developer of the Claude AI models, filed for a U.S. initial public offering. That filing eased concerns about AI valuations.

The index had fallen to its lowest close since late July on Monday, amid worries about overinvestment in AI and high oil prices.

Central banks in focus

Investors are also preparing for a busy stretch of central bank decisions.

The U.S. Federal Reserve announces its interest rate decision on Wednesday afternoon in Washington, early Thursday in Tokyo. Markets broadly expect the Fed to hold rates steady, though some traders are betting on a hike later this year as inflation stays high.

The Bank of Japan begins a two-day policy meeting on Thursday and announces its decision on Friday. It is widely expected to keep its key interest rate at 1.25%, while leaving the door open to further increases. Underlying consumer inflation in Japan accelerated to 3.2% in September, its highest in nearly three years.

Yen and currency

The yen has weakened in recent sessions, with the dollar trading around 157 to 158 yen. Japan's Finance Minister Satsuki Katayama said this week the government was prepared to take decisive action against excessive currency movements.

A weaker yen generally supports exporters, including automakers and electronics companies, by increasing the value of their overseas earnings.

Earnings season

Japanese companies are also beginning to report results for the July-September quarter. Investors will be watching for the impact of U.S. tariffs, the weak yen and demand for AI-related products.

Big Tech earnings are due this week from Alphabet, Microsoft, Amazon and Meta Platforms. Those results will be closely watched by Japanese chip equipment makers, whose sales depend on global investment in semiconductors and data centers.

Regional picture

Asian markets broadly rallied on Wednesday. Besides Seoul's surge, mainland Chinese stocks rebounded, with the Shanghai Composite rising 0.9% and tech-heavy indexes gaining more than 2%. Hong Kong shares also rose.

Oil prices gained more than 1% as tensions in the Middle East kept energy markets on edge. Brent crude traded around $115 a barrel.

_This article is for information only and does not constitute financial advice._