Buybacks Grow on Strong Earnings, Easing Tensions as Nikkei Rallies
2026-08-05
In Tokyo stock market trading on the 5th, the Nikkei Stock Average extended gains, with the morning close up 1,903 yen, or 2.98%, from the previous day at 65,861. At one point, the rise topped 2,200 yen. Buying has returned to artificial intelligence (AI) and semiconductor-related shares on the back of a series of strong earnings reports in Japan and the United States.
Buybacks Return to AI and Chip Stocks
'The fog surrounding AI is beginning to clear,' said Takehiko Masuzawa, head of trading in the equities division at Phillip Securities. High-priced AI and chip-related stocks, including Tokyo Electron, Advantest and Kioxia Holdings, all rose and pushed the index higher.
Easing Middle East Tensions Also Support the Market
US Treasury Secretary Scott Bessent said on the 4th that an agreement with Iran on issues including the reopening of the Strait of Hormuz was close. Junpei Tanaka, head of investment strategy at Pictet Japan, said the market has become one in which funds can be tilted more toward risk assets. Expectations that geopolitical risks are easing also acted as a buying factor.
Earnings Improve Market Sentiment
The trigger for the day's AI rally was earnings announcements in the United States and Japan. Caterpillar on the 4th reported net profit of $3.593 billion for April-June 2026, up 65%. The backdrop was a sharp rise in demand for construction equipment and power generation equipment tied to data center construction, sending the company's shares sharply higher.
Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management, said the results showed that AI demand, including infrastructure, remained firm, and saw them as helping improve investor sentiment.
In Japan, Ibiden on the 4th raised its consolidated net profit forecast for the year ending March 2027 to 84 billion yen, up 32% from the previous year. Strong performance in its core semiconductor-related components business put the forecast 26 billion yen above the previous estimate. On the 5th, the company's shares were bought up as much as 24% from the previous day to hit the daily limit-up level, the upper end of the price movement range. Masaaki Shimada, chief strategist at IwaiCosmo Securities, said it was contributing to a recovery in the broader market.
Breadth Still Limited
Still, it cannot yet be said that buying has turned broadly bullish. AI and chip-related shares had weakened in July on concerns about overinvestment by hyperscalers and intensifying competition with Chinese companies, but Hideyuki Ishiguro, chief strategist at Nomura Asset Management, said concerns about hyperscaler overinvestment have not intensified and Japanese AI and chip-related stocks are being re-rated.
According to Okasan Securities, 45% of TOPIX-listed companies with fiscal years ending in February or March that had reported first-quarter earnings by the 4th. The surprise ratio, based on an analysis of earnings results versus market expectations and company announcements, was 43.8%, above the 10-year median of 22.6%. The more often operating profit or recurring profit exceeds market expectations, the more the surprise ratio tends to rise.
That said, it is still hard to say investors have turned broadly bullish. Daikin Industries shares at one point fell more than 10% on the 5th. Its consolidated results for April-June 2026, announced on the 4th, showed operating profit rose 8% from a year earlier to 130.5 billion yen, a record high for the April-June period.
Ueno also sees concern that the recent yen strength could hurt earnings at export-oriented companies. Broadening of buying beyond AI and chip-related shares remains limited, and cautious views remain on whether the Nikkei can sustain its rise.
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