Asian markets rallied broadly on Friday as investors bet that renewed diplomatic efforts between the United States and Iran could ease Middle East tensions, layering fresh optimism on top of an already strong AI-chip-driven rebound across the region.
How the Region Performed
South Korea's Kospi led the region's gains, surging more than 4% (as high as 4.6% at the open) to around 7,575, while the small-cap Kosdaq advanced roughly 5.9%. Japan's Nikkei 225 climbed about 1.5%–1.8% to 68,943.76, with the broader Topix adding close to three-quarters of a percent. Australia's S&P/ASX 200 rose 0.6% to 8,814.70. In Greater China, Hong Kong's Hang Seng jumped 1.5%–1.86%, Shanghai's SSE Composite gained 0.56%, and Shenzhen's SZI rose 0.58%.
Diplomacy Hopes Take Center Stage
The rally came after President Trump indicated that Iran had reached out with proposals to return to negotiations, telling reporters Iran "called to make a deal." Qatari and Pakistani mediators are reportedly working to bring Washington and Tehran back to the table, according to officials cited by MS NOW. A U.S. official said late Thursday that Washington remains committed to a resolution with Iran, with technical talks ongoing and regional mediators pushing to revive a broader nuclear agreement.
The diplomatic thaw follows a tense stretch earlier in the week, when the U.S. launched fresh strikes on Iran for a second straight day after Tehran targeted commercial shipping in and around the Strait of Hormuz. Traffic through the critical waterway slowed sharply as a result — down to just 13 tankers on Wednesday compared with an average of 33 per day the previous week, according to Matt Smith, director of commodity research at energy intelligence firm Kpler. Eric Nuttal, senior portfolio manager at Ninepoint, said on CNBC's "Squawk Box Asia" that he believes "Iran is determined to control traffic" through the strait, adding that this could have a long-term impact on flows even if the immediate crisis cools.
Chips Remain the Bigger Story
While diplomacy headlines drove sentiment Friday, several market observers noted that the region's real momentum has actually come from a continued AI chip rebound rather than geopolitics alone. Technology and semiconductor names led gains across the region for a second consecutive session, following a major U.S. memory maker's large infrastructure investment pledge that fueled an overnight rally on Wall Street. South Korea's chip-heavy Kospi has been an especially strong performer, buoyed further by anticipation ahead of SK Hynix's debut on the Nasdaq, where its shares have already risen roughly 238% this year.
Yen and Bond Markets in Focus
Beyond equities, a structurally significant move played out in Japan's currency and bond markets. The yen firmed roughly 0.4% against the dollar, strengthening to about 161.7 per dollar after hovering near four-decade lows, following remarks from Japan's Finance Minister Satsuki Katayama that the government wants to explore ways to encourage domestic pension funds — including the Government Pension Investment Fund (GPIF) — to increase their holdings of Japanese financial assets. The comments also helped pull Japan's 10-year JGB yield back from the three-decade high it had touched earlier in the week, as investors welcomed signs that Tokyo may lean on domestic capital flows rather than direct currency intervention to support the yen.
Oil Holds Steady Amid the Optimism
Crude oil traded in narrow ranges Friday, with no fresh geopolitical escalation easing some of the worries over threats to energy infrastructure that followed this week's strikes. Citi reportedly maintained a $75 Brent base case for the third quarter, premised on a U.S.-Iran deal materializing and the Strait of Hormuz fully reopening — though with global oil inventories sitting at some of their lowest levels in recorded history, analysts caution the market remains sensitive to any reversal in the diplomatic momentum.
What's Next
Investors head into the weekend watching two parallel storylines: whether the renewed U.S.-Iran diplomatic push produces tangible progress, and whether the AI chip rally that's powered much of this week's gains — from Micron's expanded U.S. investment plans to SK Hynix's upcoming Nasdaq debut — can keep broadening across the region. For now, Asian markets are betting on both playing out favorably, but strategists note that a breakdown in either thread could quickly reverse Friday's optimism.