Japanese equities advanced as the TOPIX rose 3.8%, marking a fifth consecutive monthly gain, while the Nikkei 225 increased 3.0%, supported by strong domestic corporate earnings and easing concerns over excessive AI investment following US technology sector results. Semiconductor and AI-related stocks rebounded after July's sharp correction, while softer US economic data reduced expectations of near-term Federal Reserve tightening and further supported sentiment. Although equities briefly sold off in mid-August amid rising global bond yields and renewed uncertainty in the Middle East, strong earnings and easing geopolitical concerns helped the market recover into month-end. Services, Shipping, Non-ferrous Metals, Other Products and Mining were among the leading sectors, while Insurance, Glass & Ceramics, Warehousing & Transportation, Real Estate and Retail Trade were among the weakest performers. Small-cap stocks outperformed larger companies, and both value and growth stocks performed well, reflecting expectations of a potential Bank of Japan rate hike alongside continued investor preference for companies delivering strong earnings growth. Corporate share buybacks remained supportive, while foreign investors were net sellers in the main market for the first time in two months. Investor attention is increasingly focused on Bank of Japan policy normalisation, the sustainability of AI-related capital expenditure and whether economic growth can continue to support Japanese equities in a potentially stronger yen environment.

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