The Nikkei 225 index closed above the stratospheric 50,000 level for the first time on Oct. 27, buoyed by a domestic political shakeup, technological advancements and Wall Street’s bull market.

Investors hold high expectations for the Takaichi administration’s economic agenda, and are also encouraged by worldwide demand for artificial intelligence and soaring U.S. stock performances.

The benchmark index of the Tokyo Stock Exchange opened at 49,905.80, up 606.15 points from the previous week’s close on Oct. 24, and topped 50,000 at around 9:03 a.m.

The index ended the day at 50,512.32, up 1,212.67 points, or 2.46 percent, with shares rising across the board in all 33 industrial sectors.

Fueling the rally are expectations for the new prime minister’s expansionary fiscal policies and accommodative monetary stance.

Since Sanae Takaichi was elected president of the Liberal Democratic Party on Oct. 4, stock prices have surged in what market players dubbed the “Takaichi trade.”

The Nikkei index soared more than 2,800 points over the four trading days through Oct. 9, closing above 48,000 for the first time.

The market tanked on Oct. 10, when Komeito said it would withdraw from the ruling coalition with the LDP, but progress in the LDP’s coalition talks with Nippon Ishin (Japan Innovation Party) eased political uncertainty, sending stock prices back on an upward trajectory.

The Nikkei index closed above 49,000 on Oct. 20, when the two parties concluded a coalition agreement.

With an Oct. 27 closing of more than 50,000, the gain since Takaichi’s inauguration as LDP president amounts to more than 4,700 points in a span of about three weeks.

On Oct. 27, the Tokyo Stock Exchange also carried over momentum from Wall Street trading floors last week.

The Dow Jones Industrial Average hit an all-time high on Oct. 24, finishing above 47,000 for the first time.

Investors bought U.S. stocks on expectations that the Federal Reserve would proceed with interest rate cuts following the release of a consumer price index that fell below market forecasts.

Leading the global rally are AI and semiconductor-related companies.

Against a backdrop of vigorous global AI demand, high-tech issues, such as those related to computer microchips, have performed strongly in the U.S. market, keeping major stock indices at elevated levels.

The momentum has spilled over into Japan, with shares of chipmaking equipment supplier Tokyo Electron Ltd., chip testing gear manufacturer Advantest Corp. and Softbank Group Corp., which invests in U.S. AI-related companies, pushing the Nikkei index higher.

The yen’s depreciation against the dollar has also benefited Japanese share prices, particularly for exporters.

Takaichi’s positive stance toward monetary easing has dampened hopes for an early interest rate hike by the Bank of Japan, spurring moves to sell the yen amid expectations of prolonged low interest rates.

The Japanese currency weakened from the 147-yen range against the dollar on the evening of Oct. 3, a day before Takaichi’s election as LDP president, to touch the 153-yen range on Oct. 9.

While some reversal toward a stronger yen followed, the yen hovered around 153 yen to the dollar in Tokyo trading on Oct. 27.

Maki Sawada of Nomura Securities Co. cautioned that investors may sell shares to lock in profits if earnings results to be released this week by AI and semiconductor-related companies in Japan and the United States disappoint the market.

She said the Nikkei 225 index could fall back to the 47,000 level in a correction phase.

The index had languished since peaking at a closing high of 38,915 at the end of December 1989 during the asset-inflated economic boom. After the economic bubble burst, the nation’s economy struggled with prolonged deflation.

In the wake of the global financial crisis triggered by the collapse of Lehman Brothers in autumn 2008, the index hit a post-bubble low of 7,054 in March 2009.

The second administration of Shinzo Abe, launched in 2012, pursued “Abenomics” economic policies centered on the Bank of Japan’s unprecedented monetary easing.

Corporate earnings buoyed by a weaker yen and buying of Japanese equities by overseas investors drove stock prices higher.

In February 2024, the Nikkei index surpassed its bubble-era high for the first time in about 34 years. The Tokyo Stock Exchange’s call for listed companies to practice “share price-conscious management,” such as improving shareholder returns, also provided tailwinds.

The index closed above 40,000 for the first time in March 2024. Roughly one year and eight months later, it has now breached the 50,000 threshold.

(This article was written by Kuniaki Nishio and Kenji Izawa.)