Japan’s flaship stock market closed above the 40,000 mark for the first time as the rally fueled by AI excitement continued.

The benchmark Nikkei 225 index added 0.5pc, or 198.41 points, to end at 40,109.23, days after breaking a stock market record that had stood since 1989.

Tokyo and other major global shares have steadily gained since last year, and analysts predict the Nikkei should gain even further, lifted by rallying Wall Street, robust corporate earnings and strong hopes for AI technologies.

The Nikkei waited for 34 years to return to its record highs after an asset bubble in Japan catastrophically burst in the early 1990s.

Daiju Aoki, regional chief investment officer at UBS SuMi Trust Wealth Management, said: “When markets reach a record, they tend to be stuck in range.

“The Nikkei reaching 40,000 shows that many investors, especially from overseas, are still bullish on Japanese stocks.”

The excitement around Japan’s stock markets “isn’t justified” because of weak profit margins at many companies, according to economists.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, said Japanese firms’ profitability remains the lowest among G7 countries. He said:

The decline in listed firms’ profit margins over the last couple of years despite the tailwind from a weaker yen suggests that improved corporate governance isn’t changing corporate behaviour. 

While timely data point to a rebound in profitability, the narrative that Japan is on the cusp of a new dawn remains flawed.