Japan’s Golden Week holiday has just ended, meaning all the major positive developments in global markets were compressed into the market open. During the morning session on May 7 (Beijing time), the Nikkei 225 opened with a large gap higher and almost never looked back, surging as much as 4% intraday and touching a record high of 62,059.20. The TOPIX index was also strong, rising more than 2%.

The Dual Engines Driving the Nikkei

This one-step catch-up rally was rooted in the fact that overseas markets did not stand still during Japan’s market holiday. The biggest catalyst came from U.S. technology giants delivering earnings strong enough to ignite market confidence across the board.

AMD surged nearly 20% overnight following earnings, the Philadelphia Semiconductor Index continued to rally, and the Nasdaq reached fresh highs amid enthusiasm surrounding the AI arms race. For Japan, one of the world’s major semiconductor equipment hubs, this effectively became the signal for aggressive buying at the open. Tokyo Electron, Advantest, and Lasertec — the country’s most important semiconductor equipment manufacturers — surged sharply and became the strongest rope pulling the index higher.

But the real reason bulls were willing to enter the market regardless of cost and push the Nikkei decisively above 62,000 came from a major breakthrough in the international geopolitical landscape.

After Trump confirmed a “long-term blockade” at the end of April, global oil markets became extremely nervous, sending Brent crude to as high as $112. However, during Golden Week, key signals of reconciliation emerged from the Middle East. According to reports, the U.S. and Iran are close to reaching a 14-point memorandum of understanding, including the gradual reopening of the Strait of Hormuz and a framework for future nuclear negotiations.

For Japan, a country that relies almost entirely on seaborne energy imports, the reopening of the Strait of Hormuz signals that the worst phase of the “imported inflation nightmare triggered by surging oil prices” may finally be ending.

The strong momentum in technology stocks combined with easing geopolitical risks formed the “dual engines” pushing the Nikkei above 62,000. But the policy backdrop behind the rally should not be ignored.

The Deeper Drivers Behind the Rally

The Japanese government and central bank have effectively deployed a powerful combination of policy measures.

According to disclosures, foreign exchange intervention operations were carried out on April 30, May 1, and May 4 — three consecutive trading days. The April 30 intervention was confirmed to be Japan’s first direct yen-buying operation since 2024, with the intervention size reaching as much as ¥5.4 trillion. At one point, the yen surged nearly 3% against the dollar, marking the largest intraday move in almost two years.

Then on the afternoon of May 6, when the old “weak yen” model driving the Nikkei threatened to push USD/JPY toward the politically sensitive 160 level, the U.S. dollar index suddenly plunged and the yen rallied violently by nearly another 2%, briefly reaching 155.04.

The cost of this strategy is enormous. Bank of Japan meeting minutes have already warned that with government debt accounting for an extremely high share of GDP, every 1 percentage point increase in interest rates could increase annual interest expenses by roughly ¥10 trillion.

As a result, the Bank of Japan’s strategy has become one of buying time: firmly maintaining reasonable equity market valuations while simultaneously demonstrating determination to manage the yen within a “weak but stable” range, thereby controlling both capital outflow pressure and imported inflation risks.

This series of policy maneuvers has shaped the current Japanese market landscape — Japan is not only the “seller of shovels” for the global AI infrastructure boom, but also the market receiving precise central bank support amid geopolitical turmoil and interest-rate differentials.

As global capital searches for certainty during a period of volatility, Japan’s macroeconomic policy mix has successfully attracted both safe-haven flows and industrial capital inflows.

With the global AI race continuing and geopolitical tensions temporarily stabilizing, the Nikkei’s break above 62,000 may not be the end.

But what truly determines the next phase will be whether the yen can remain within the central bank’s preferred “weak but stable” comfort zone, and whether the “wage-price” virtuous cycle can deliver a more convincing recovery in household consumption during the second half of the year.