Nikkei Rally Accelerates as 70,000 Comes Into View

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On May 25, the Nikkei Stock Average closed above 65,000 for the first time on the Tokyo Stock Exchange, marking another milestone in a rally that has gathered pace in recent weeks.

It took six months for the benchmark to rise from 50,000 to 60,000. Its climb since then has been much faster, helped by easing concerns over the Middle East crisis and renewed strength in artificial intelligence- and semiconductor-related shares. Some market watchers now say the index could top 70,000 by the end of the year.

Middle East Concerns Ease

The Nikkei first crossed the 50,000 mark on October 27 last year, closing at 50,512.32. On April 27 this year, it surpassed 60,000 for the first time, reaching 60,537.36. Less than a month later, it has now cleared 65,000, with market participants saying the rally is gaining speed.

Investor anxiety over the Middle East has eased following reports of progress in talks to end fighting between the United States and Iran. Meanwhile, AI and semiconductor-related shares have stood out, buoyed by developments such as Nvidia's earnings and OpenAI's planned initial public offering.

On May 25, buying in Tokyo focused on chip memory giant Kioxia Holdings and SoftBank Group. Data center-related stocks also gained, including Fujikura, which handles products such as optical fiber, and electronic components maker Murata Manufacturing.

Some investors continue to warn that AI and semiconductor-related shares are overheating. But Hideo Kumano, chief economist at Daiichi Life Research Institute, said earnings are beginning to justify the gains, leaving the sector "on solid footing for the time being." These stocks are likely to remain a driving force in the market.

Momentum Stronger Than Expected

Investor interest is spreading across a broader range of shares, said Yugo Tsuboi, chief strategist at Daiwa Securities. On May 25, the Tokyo Stock Price Index, or TOPIX, which reflects the overall direction of the market, closed at a record high for the first time in three months. That suggests buying is no longer limited to the handful of high-priced stocks that have helped drive the Nikkei higher.

Kumano expects the Nikkei to "touch 70,000 early this year." Tsuboi said he had initially viewed 70,000 as the likely peak for the year, but added that "momentum is stronger than expected, and the index may now have room to break through that level."

Others remain cautious. Chisato Haganuma, chief strategist at Mitsubishi UFJ Trust and Banking, pointed to trends in corporate earnings, saying, "The market may rise in the short term, but in the second half of the year it could move sideways or face a correction."