A Historic Quarter in Tokyo

The Nikkei 225, Japan’s benchmark stock index, is closing out the quarter with a roughly 36% rise, a pace not seen in six decades. The rally has been led by a rebound in technology shares, with chip and artificial intelligence (AI) names driving the index to fresh record highs above the 64,000 mark.

The advance has been broad and fast, given the Nikkei set an all-time high earlier in the year and has continued to climb ever since (leaving it up sharply against the same period in 2025). Analysts have tied the surge to renewed appetite for AI infrastructure and a recovery in semiconductor demand, the same forces lifting equity benchmarks elsewhere.

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The yen has slumped to 162.27 per dollar, its weakest level since 1986, and a softer currency flatters the earnings of Japan’s export-heavy index. Companies that sell abroad book stronger profits when overseas revenue is converted back into a depreciated yen, a catalyst that has helped lift Tokyo stocks even as the currency’s slide rattles policymakers.

The same rate gap pressuring the yen, the Bank of Japan’s low policy rate against far higher U.S. rates, has supported risk assets globally, and Tokyo’s exporters have been among the clearest beneficiaries. A stronger yen, by contrast, could erode the earnings boost that has underpinned much of the quarter’s gains.

Surging risk appetite in one of the world’s largest equity markets rarely stays contained. Japanese retail investors are active across both stocks and digital assets, and a record-breaking quarter for the Nikkei reflects the same risk-on mood that has, at times, lifted bitcoin and other cryptocurrencies. A weakening yen has also strengthened the case some investors make for holding scarce assets as a hedge, a theme that spans equities and crypto alike.

Still, the relationship is far from mechanical. Equity rallies and crypto cycles can diverge sharply, and a sudden reversal in the yen carry trade has historically jolted both markets at once. The question now is whether the momentum holds into the second half. With the rally leaning heavily on AI and chip stocks and on a weak yen, any shift in either, a technology pullback or a yen rebound driven by intervention or a BOJ rate move, could test the gains.

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