Nikkei 225 holds near 39,770 as AI stocks rebound, yields jump

Japan's Nikkei 225 steadied near 39,770 on Wednesday as artificial intelligence stocks rebounded from a sharp sell-off, while rising bond yields capped gains.

The Nikkei 225 traded at 39,770 in afternoon trading, about 7% below its highest level this year, as AI-related shares recovered some losses from Tuesday's rout. The broader Topix index slipped 0.24%, reflecting a cautious tone across Japanese equities.

"The rebound in AI names is providing a floor for the Nikkei, but the jump in bond yields is creating a ceiling," said Sarah Lin, equity market analyst at Edgen. "Investors are weighing the rotation back into tech against the pressure from higher rates."

Kioxia Holdings Corp. led the recovery among semiconductor-linked stocks, rising sharply after the chipmaker's recent IPO drew strong demand. The move helped offset weakness in other sectors as Japan's 10-year government bond yield climbed, pressuring growth stocks with longer-duration cash flows.

Regional markets were mixed. South Korea's Kospi fell 2.19% and the small-cap Kosdaq dropped nearly 4%, while Hong Kong's Hang Seng Index rallied 2.38% and mainland China's CSI 300 added 0.61%. The divergence reflected varying exposure to the AI trade and oil price sensitivity.

Oil Surge Adds to Uncertainty

Brent crude futures for September delivery jumped 1.9% to $75.53 per barrel, while West Texas Intermediate for August rose 2.1% to $71.87, after the U.S. launched strikes against Iran in retaliation for attacks on commercial vessels in the Strait of Hormuz. The Treasury Department revoked a license permitting Iran to sell oil globally, tightening supply expectations.

The oil move weighed on import-dependent Asian economies while boosting energy stocks. Japan, which imports nearly all its crude, faces additional cost pressure that could feed into consumer prices and influence Bank of Japan policy decisions.

Overnight on Wall Street, the Dow Jones Industrial Average fell more than 100 points after touching a fresh intraday record, while the S&P 500 slipped 0.5% and the Nasdaq Composite dropped 1.2% as chipmakers led declines. Investors rotated out of AI-linked stocks amid rising oil prices and geopolitical uncertainty.

FOMC Minutes in Focus

Investors now turn to the minutes from the Federal Open Market Committee's June meeting, due at 2 p.m. ET Wednesday. The release is expected to provide insight into Federal Reserve Chairman Kevin Warsh's first policy meeting, where officials left rates unchanged while signaling additional hikes could be warranted if inflation persists.

"The FOMC minutes will be a wildcard simply because Warsh was so opaque at the most recent press conference," Adam Crisafulli, founder of Vital Knowledge, said in a note. "Normally, Powell provided fairly comprehensive accounting of the meeting discussion, but that didn't happen with Warsh, so the minutes, which are likely to be hawkish in tone, could contain some surprises."

For the Nikkei, the combination of rising domestic bond yields, higher oil prices, and a potentially hawkish Fed creates a challenging backdrop. The index's ability to hold above 39,700 will depend on whether AI momentum can sustain the rebound and whether the BOJ's yield curve control stance provides a buffer against further rate increases.

This article is for informational purposes only and does not constitute investment advice.