Asian Markets Rally as AI Optimism Returns and Yen Softens

Japan’s Nikkei climbed over 4%, while MSCI’s broadest index of Asia-Pacific shares outside Japan added 5%. This recovery mirrors a rally in Wall Street heavyweights Microsoft and Amazon, whose earnings reports helped soothe investor anxieties regarding heavy AI infrastructure investment. Fabien Yip, a market analyst at IG, noted that the recent market dip appeared to be an overreaction, suggesting that the underlying demand for AI remains sustainable.

Despite the positive momentum, regional markets remain bruised. South Korea’s Kospi is on track to close July with a nearly 25% loss, the index’s worst monthly performance since 1997. Authorities in Seoul have moved to curb the leveraged products that exacerbated the recent instability, while global investors continue to scrutinize whether hyperscalers will maintain their current capital expenditure plans.

The yen softened by 0.8% to 160.76 per dollar after the Bank of Japan elected to keep interest rates steady. While the decision was widely anticipated, the currency’s movement remains under close watch following suspected coordinated intervention by authorities in New York to curb recent volatility. Meanwhile, energy markets showed restraint; Brent crude fell over 1% to $88.00 per barrel despite rising tensions in the Middle East and a drone strike affecting shipping near Egypt’s Damietta port.