Japan's stock market has reclaimed the high-water market set before its asset bubble burst in the early 1990s.

Why it matters: It's a reflection of how a couple of strategically important corporations find themselves at the epicenter of two key economic trends at the moment: the AI boom, and worsening relations between China and the West.

State of play: The Nikkei closed at a new record high of 39,098.68 on Thursday, topping the all-time closing high reached on Dec. 29, 1989.

Context: The collapse of the Nikkei was a harbinger of what would become a large-scale crash for financial assets, real estate and the banking system.

• The crash would sink the Japanese economy into a deflationary funk, known as the "lost decade," that extended well beyond the 90s.
• After peaking in 1995, Japan's GDP didn't reach that level again until 2010, according to IMF data.

Driving the news: The recent surge for the Nikkei has been supercharged by the AI gold rush, with large Japanese exporters of semiconductor equipment soaring over the last year.

• Both Tokyo Electron, which makes semiconductor manufacturing equipment, and chip-testing equipment maker Advantest, a supplier to Nvidia among others, have seen their share prices more than double — in U.S. dollar terms — over the last year.

Be smart: These two companies have the second-and-third-largest weightings in the Nikkei 225, a price-weighted index similar to the Dow Jones Industrial Average.

• That means their surge has been a major driver in the index's overall increase.

The bottom line: Japan's chip-making prowess — and close political ties with the U.S. — put it in prime position to cash in on the AI frenzy, as its capital and corporations enjoy relatively easy access to the U.S.

• This is a marked distinction from China, whose economic, technological and political connections to the U.S. and Europe have deteriorated sharply over the last few years.

On the other hand: The Nikkei's run shouldn't be confused for an overall boom in the Japanese economy, as it reflects the idiosyncratic AI explosion.

• In fact, Japan slipped into recession at the end of 2023.