The 225-issue Nikkei stock average’s buoyant performance continued Monday, closing at 39,233.71 to set a new all-time closing high for the second consecutive trading day.

Markets were closed on Friday for a public holiday, but this failed to slow momentum, with the Nikkei up 135 points on Monday. The index had opened at 39,320.64, before dipping slightly in the afternoon.

Still, semiconductor-related businesses including Advantest and Tokyo Electron dipped slightly following a boost last week, along with SoftBank Group, while Uniqlo operator Fast Retailing benefited from the rally, edging up 0.86%.

U.S. chipmaker Nvidia posted strong earnings results last week, with this being credited as providing a boost to investor confidence regarding the tech industry. Nvidia also has plans to establish a research and development center in Japan.

The Topix was also up 0.49%, closing at 2,673.62. In the morning it had reached 2686.27, its highest point since February 1990.

Japan’s overall stunning stock performance has been driven by corporate governance reforms, strong corporate earnings and the weak yen against the dollar.

Last Thursday, the Nikkei reached 39,098.68, surpassing the previous all-time high of 38,957.44 marked in December 1989.

While the numbers may be reminiscent of Japan’s bubble era — which saw dizzying real estate prices and a frenzy of record-setting art acquisitions — the conditions and underlying drivers of the rally are markedly different this time.

Bubble-era stock prices were not backed up by earnings, which analysts say is a key differentiator.

Japanese companies have started the year strongly. Semiconductor and AI-related companies, including those of SoftBank Group, have reported robust earnings, while Toyota upped its annual profit forecast earlier this month, giving its shares a boost. Fast Retailing also saw a strong start to the year, prompting investors to snap up its shares.

But while the stock exchange is enjoying a positive moment, Japan’s economy faces deep set challenges, including an aging population and slow growth. Earlier this month, Japan lost its ranking as the world’s No. 3 economy after a surprise gross domestic product contraction.

Still, Japan is well positioned to capitalize on broader regional shifts at play.

Analysts and investors, including Warren Buffett, have highlighted the geopolitical risks surrounding China, with this making Japan a more compelling option as investors look for opportunities elsewhere in Asia.

Ilan Furman, chief investment officer at finance intelligence platform Bridgewise, said Japan’s strong performance was partly related to investors' concerns related to China’s faltering economy and poor stock market performance.

The Shanghai Composite Index has been on a downward trajectory over the past 12 months, although it has rallied in recent weeks.

“The performance of Japanese equities is quite diversified across sectors, suggesting that investors are not focused on China proxy names or sectors, but actually looking to diversify away,” Furman said.