The Nikkei's outperformance versus the Topix shows a narrow, tech-led rally sensitive to global AI sentiment and US rate expectations, not a broad re-rating of Japanese equities. The softer Fed outlook is supportive for risk, but it cuts both ways for Japan. A stronger yen, if the BOJ hikes while the Fed pauses, would weigh on exporters and could cap gains. This week's Fed minutes are the next test: a hawkish tone could quickly reverse Friday's relief rally. With oil still elevated and service-sector prices rising fast, the backdrop for a BOJ move remains in place, which is a headwind for the yen-sensitive parts of the market.---Earlier:BOJ's Uchida says AI is a big demand shock lifting prices, warns of correction risk---Japan's AI stocks are back in favour after soft US jobs data, but the narrow rally suggests investors are choosing more carefully than they did earlier this year.Summary:The Nikkei rose around 2.5% to its highest since early July by the midday break, led by AI-related stocks.The broader Topix gained around 1.2%, pointing to a narrow, tech-driven rally.Wall Street rose on Friday after weak US jobs data reduced expectations of a Fed hike this month.One market participant said sentiment remains muted compared with earlier this year and expects a more selective AI rally.Japan's Nikkei share average climbed to a three-month high on Monday, led by artificial intelligence-related stocks after Wall Street rallied at the end of last week.The Nikkei rose around 2.5% by the midday break, reaching its highest level since early July, while the broader Topix gained around 1.2%. The gap between the two indexes points to a rally concentrated in heavily weighted technology names rather than a broad-based advance.The lead came from the United States, where stocks advanced on Friday after weaker than expected jobs data reduced expectations that the Federal Reserve will raise interest rates at its meeting this month.One market participant said investors were buying AI-related shares, but cautioned that sentiment remains subdued compared with earlier this year, when the Nikkei set a record high. The participant said the AI rally is likely to continue, though investors are expected to become more selective.The move comes on a busy day for Japan's policy outlook. Separate survey data showed services growth slowing in September while price pressures stayed intense, and Bank of Japan Deputy Governor Uchida described AI as a significant positive demand shock. Investors will now look to this week's Fed minutes for further direction.Bank of Japan Governor Ueda This article was written by Eamonn Sheridan at investinglive.com.