AI boom brings records to Japanese market

Japanese stocks had an exceptional year in 2025, climbing to new records amid the artificial intelligence (AI) boom, but also Prime Minister Sanae Takaichi's plans to strengthen domestic production, respectively the revaluation of the financial sector, in the context of rising interest rates.

At the end of 2025, the Nikkei 225 index reached a record year-end level of 50,339 points. The index gained 10,444 points during the year - the largest annual increase so far, according to asia.nikkei.com.

The advance reflects a shift in the Japanese economy from deflation to inflation and expectations related to a government growth strategy focused on improving supply capacity. Hopes are particularly high for the manufacturing and financial sectors, the cited source notes.

Takaichi's government has designated 17 key investment areas, including artificial intelligence and shipbuilding, to ensure economic security and ease supply constraints that have held back Japan's economic growth.

The market is closely watching makers of cutting-edge technologies - seen as essential to AI-related businesses. Japanese companies have long struggled with a strong yen and cost competition from China and other emerging economies, but the AI boom has highlighted the country's potential in manufacturing key components for the rapidly growing data centers.

• Kioxia Holdings shares up 540%

Kioxia Holdings, a provider of memory chips used in servers worldwide, has surged 540% in 2025. Major cable maker Fujikura has seen its share price rise 170% on strong demand for fiber optic cables for data centers.

Mitsui Mining & Smelting shares have risen about fourfold. The company, known as Mitsui Kinzoku, produces copper foil and has announced a series of capacity expansions in 2025.

Strategies to strengthen and rebuild supply chains have also been well received by the stock market. As a result, Toyo Engineering shares have risen about fourfold. The company is involved in a rare earth development project in collaboration with the Japanese and US governments.

Mitsubishi Heavy Industries gained on continued increases in defense spending. The company also has a strong position in gas turbines for fossil fuel power generation, a sector facing growing global demand.

Attention is also focused on the revival of the shipbuilding industry, where Japan was once a dominant power and where the government is targeting 1 trillion yen ($6.4 billion) in investment. Mitsui E&S's share price has tripled in anticipation of future orders.

Macroeconomic changes in Japan have also created new avenues for investment. Inflation has risen and interest rates have been raised, a move that has boosted financial stocks, particularly banks. The Bank of Japan raised interest rates in January and December 2025, raising its key policy rate to 0.75% from 0.25%. Long-term interest rates have risen above 2% for the first time in 19 years. In this situation, bank stocks have come into the spotlight. As a result, the share price of Mizuho Financial Group has increased, for example, by 47%.

The total market capitalization of Japan's three mega-banking groups - Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho - increased by about $100 billion in 2025. Regional banks such as Hokuhoku Financial Group and Shizuoka Financial Group saw their share prices nearly double.

Also in 2025, the auto industry, a pillar of Japanese manufacturing, faced intense global competition. In this context, Toyota Motor, whose shares rose by more than 10% last year, is expanding its production in the US and plans to manufacture more than 10 million vehicles worldwide by 2026. Other automakers are also considering increasing production in the US. Cost and capacity management will be crucial to securing profits in the face of tariffs imposed by President Donald Trump.