The Nikkei stock index rose on Friday, supported by gains in shares of companies related to artificial intelligence, while the Japanese bond and currency markets also advanced on the prospect of a potential shift in investment strategy of Japan's massive pension funds.

The benchmark Nikkei 225 closed up 1.2 percent at 68,557.73, after gaining as much as 2.4 percent earlier in the session. The broader Topix index rose 0.39 percent to 4,036.08.

The yield on the 10-year Japanese government bond fell 11.5 basis points to 2.76 percent, retreating from a three-decade high. The yen also rose 0.5 percent against the dollar to 161.550.

Technology shares on Wall Street saw notable gains after Micron Technology, a chipmaker, announced plans to invest over $250 billion in the United States through 2035.

Shutaro Yasuda, market analyst at Tokai Tokyo Research Institute, said: 'Japanese stocks were influenced by the rise in U.S. technology shares overnight.' Kazuaki Shimada, senior strategist at Iwai Cosmo Securities, also noted that the index trimmed its early gains as South Korea's Kospi index declined.

Chip-related stocks led the Nikkei's gains, with Sumco rising 15.40 percent to hit an intraday high of 5,244 yen. SoftBank Group shares rose 10.65 percent, while Advantest, a chip testing equipment maker, gained 2.3 percent. In contrast, Fast Retailing shares closed down 3.59 percent, marking its biggest daily drop since May 12.

Meanwhile, bond and currency markets saw significant gains following comments by Finance Minister Satsuki Katayama on Thursday, who indicated that the government would consider measures to encourage pension funds, including the Government Pension Investment Fund, to increase their investments in domestic financial assets. The prospect of Japan's largest pension investors funneling more money into local markets boosted sentiment for bonds and the yen, which have faced persistent pressure in recent years.

Masahito Sugawara, senior strategist at Daiwa Securities, said: 'Katayama's comments helped reverse the selling trend in Japanese government bonds and the yen. Currently, half of Japanese pension fund assets are invested in foreign assets. The market has bet that any potential shift in asset allocation would have a positive impact on Japanese assets.'

Miki Dene, senior Japanese interest rate strategist at SMBC Nikko Securities, explained that yields continued to decline later in the session as foreign investors bought Japanese government bonds to cover their short positions after the European market opened.