Japan's Nikkei share average surged to a four-month high on Tuesday, mirroring the robust gains seen on Wall Street, buoyed by signs of a potential de-escalation of tensions in the Middle East. The benchmark index closed 0.6% higher at 38,536.74, having touched an intraday high of 38,581.25, a level not seen since February 21. Concurrently, the broader Topix index also advanced, adding 0.4%.

A significant driver of the market's ascent was the performance of bank shares, which saw an increase after the Bank of Japan (BOJ) signaled its continued trajectory towards future interest rate hikes. This indication came despite the central bank's widely anticipated decision to maintain current borrowing costs at 0.5% during its two-day policy meeting that concluded on Tuesday. The BOJ also announced a plan to halve the pace of government bond purchase reductions starting from next April, a move aimed at supporting the bond market. Policymakers affirmed that consumer prices remain on track to meet the central bank's inflation target, with Governor Kazuo Ueda expected to reiterate the commitment to raising rates in the future, potentially as early as October.

The improvement in global market sentiment, largely influenced by reports of Iran seeking a ceasefire with Israel, played a crucial role in boosting investor confidence. This latest flare-up in the Middle East was described by analysts as more akin to the Six-Day War of 1967, suggesting a shorter, contained conflict. Market relief was further augmented by a cooling in crude oil prices, particularly after Israel opted not to target key Iranian oil export infrastructure.

Within the Japanese equity market, chip-related stocks emerged as some of the top performers on the Nikkei. Disco led the charge with an impressive 6.3% surge, while Advantest climbed 2.4% and Tokyo Electron advanced 2.9%. The Topix banking index, despite initial morning losses, recovered to end the day up 0.3%. Furthermore, Japanese growth shares generally outperformed, with a Topix index of securities rising 0.5% compared to a 0.2% increase for value shares. Overall, out of the 225 components of the Nikkei index, 136 stocks saw gains, 83 declined, and six remained flat, reflecting a broad positive sentiment across the market.