Japan's Nikkei share average rose on Monday, staying close to the all-time high it reached last week, as enthusiasm around artificial intelligence continued to drive buying in tech-heavy stocks despite ongoing tensions in the Middle East.

AI Optimism Carries the Day

The AI sector has been a consistent engine for equity markets in recent months. Investors have been pricing in strong earnings potential from companies tied to AI infrastructure, chips, and software — and that appetite has been enough to offset the risk-off pressure that Middle East instability would normally trigger.

Japan's market is particularly sensitive to global tech sentiment. The Nikkei includes major exporters and technology-linked companies whose valuations tend to track the broader global mood around innovation cycles. When AI enthusiasm runs high in the US, it tends to lift Japanese equities with a short lag.

Middle East Risk: Priced In or Pushed Aside?

Geopolitical risk from the Middle East — including concerns around energy supply disruption and broader regional instability — has been a recurring headwind for global markets. On Monday, that concern was present but not dominant. Markets appear to be treating the situation as a known risk rather than a new shock, which limits its day-to-day impact on equities.

Oil price moves, which are the most direct transmission channel from Middle East tensions to corporate costs and inflation expectations, are the key variable to watch. If energy prices spike sharply, the calculus for equities — including the Nikkei — could shift quickly.

For now, the balance of sentiment favors growth. The Nikkei's proximity to its all-time high suggests that buyers remain in control, and AI-linked momentum is providing enough fuel to keep the index elevated. Whether that holds depends on how both the AI earnings cycle and Middle East developments unfold in the weeks ahead.