The Nikkei 225 index has surged to within reach of its all-time high, led by semiconductor-related stocks bolstered by growing demand in the artificial-intelligence industry.

The benchmark index climbed to the 38,000 level on Feb. 13 for the first time in about 34 years and closed at 37,963.97, up more than 1,000 points from the previous day.

It declined slightly on Feb. 14, ending at 37,703.32, but still within reach of its record high of 38,915 set in December 1989, during the height of the asset-inflated bubble economy.

Since the beginning of this year, the Nikkei 225 index has risen by about 4,500 points.

Semiconductor-related stocks have been at the forefront of the rally. In both Japan and the United States, investors are buying such stocks on expectations of increased demand driven by the spread of AI.

The semiconductor market slumped for a time after demand for electronics, including computers, spurred by COVID-19 stay-at-home measures, fizzled out.

However, the recent AI boom has revitalized the sector.

High-tech stocks, including semiconductor-related equities, that are bought on expectations of increases in profits, tend to easily rise in value when interest rates fall.

Expectations of lower interest rates in the United States have fueled the jump in share prices.

The stock price of Nvidia Corp., a U.S. company that holds an 80-percent share of the global market for AI-targeted semiconductors, has been reaching new highs almost every day this month in the United States.

Arm Holdings, a major British semiconductor design company, has also seen a sharp rise in its share price after its earnings forecast exceeded market expectations.

On the Tokyo Stock Exchange, the share prices of Tokyo Electron Ltd., a manufacturer of chipmaking equipment, and SoftBank Group Corp., which owns Arm Holdings, have each risen by about 40 percent.

The Nikkei index, which is calculated based on the average of 225 major companies, is heavily influenced by movements of such stocks, whose price per share is high.

On Feb. 13, Tokyo Electron alone pushed up the Nikkei average by 392 points, while the SoftBank Group added 106.

There have been several days this year when the Nikkei 225 rose despite declines in more than half of all stocks. This shows the index is being driven by jumps in high-priced stocks, such as semiconductor-related ones.

CONCERNS ABOUT MARKET OVERHEATING

In the United States, the Fed has sharply increased interest rates to curb inflation, and long-term interest rates are now above 4 percent.

Higher rates make it more expensive for companies and individuals to borrow money, potentially leading to an economic downturn.

However, recent economic indicators have been solid in the United States, and hopes are rising in the market for a soft landing that avoids an economic recession while controlling inflation.

U.S. interest rates are expected to drop this year, prompting investors to flow more money into stocks.

On Feb. 12, the Dow Jones industrial average in New York touched a record high, providing further momentum for shares of Japanese companies, which have been reporting strong business performances.

According to SMBC Nikko Securities Inc., more than 700 companies, or 60 percent of the around 1,200 companies that have announced their financial results for the April to December 2023 period by Feb. 9, posted increases in net profit.

Toyota Motor Corp. said its net profit is expected to surpass 4 trillion yen for the first time. Its stock price has hit the highest level since the automaker’s shares were listed on the Tokyo Stock Exchange.

Central banks often tighten monetary policy to cool off an overheating market.

However, Shinichi Uchida, deputy governor of the Bank of Japan, said on Feb. 8 that the central bank will maintain a relatively easy monetary policy even after it shifts from its ultra-loose policy by ending negative interest rates.

His words eased investors’ concerns about a rapid monetary tightening by the BOJ.

Stock market players appear mixed between expectations for a record high close and concerns about an overheated market.

Shuji Hosoi of Daiwa Securities Co. said the Nikkei 225 could reach its all-time high, depending on the earnings announcement from Nvidia on Feb. 21.

“However, some high-priced stocks are leading the index, so a short-term overheating in the market is undeniable,” he added.

(This article was written by Kohei Higashitani and Kyosuke Yamamoto.)