Tokyo Stocks Lose Ground as Exporters Face Stronger Yen

The broader TOPIX fell 3.69 factors, or 0.09%, to 4,046.64, displaying that the broader market additionally lacked momentum. The decline was modest, nevertheless it got here after sharp swings earlier within the week and mirrored continued uncertainty over currencies, oil costs, Bank of Japan coverage and the worldwide interest-rate outlook.

The Nikkei opened decrease at 65,087, briefly recovered in morning buying and selling and was up 226 factors on the lunch break at 65,495, helped by shopping for in chosen semiconductor and AI-related shares. The rebound light within the afternoon, and the index returned to unfavourable territory earlier than closing decrease for a second straight session.

The intraday sample confirmed that buyers have been prepared to purchase elements of the AI commerce on weak spot, however not sufficient to beat the macro strain from the yen, oil and rates of interest. The market’s incapability to carry morning positive factors additionally instructed that buyers remained cautious earlier than U.S. inflation knowledge and subsequent week’s BOJ and Federal Reserve conferences.

Prime Market breadth was weaker than the index transfer implied. At 1 p.m., decliners outnumbered gainers, with 833 shares falling towards 668 rising, and the imbalance remained an indication that the market was not broadly recovering regardless of early power in some know-how names.

Nikkei CNBC-style market commentary would probably give attention to the uneven nature of the session. Semiconductor and AI-related shares initially supported the index, however promoting in Advantest, Fast Retailing, Tokyo Electron, Recruit Holdings and different high-impact Nikkei parts pulled the benchmark again down.

Advantest was one of many largest drags on the Nikkei, subtracting greater than 230 factors from the index round early afternoon. The chip-testing gear maker stays one in all Japan’s most direct beneficiaries of AI semiconductor demand, however its massive weighting additionally makes it one of many greatest sources of draw back at any time when buyers take income or develop into cautious about valuations.

Tokyo Electron additionally weighed on the index. The semiconductor-equipment maker stays central to Japan’s function in international chip manufacturing, however buyers have develop into extra selective as rising yields and foreign money swings make it tougher to justify excessive valuations throughout your complete AI provide chain.

Fast Retailing fell and was one other main unfavourable contributor. The retailer usually weighs closely on the price-weighted Nikkei, and its weak spot confirmed that strain was not restricted to semiconductor names.

Recruit Holdings, Terumo, Konami Group, Nintendo, KDDI, Nitori Holdings, Sony Group, Trend Micro, Olympus, Astellas Pharma, Nomura Research Institute and Kikkoman have been additionally amongst shares reported decrease through the session, displaying that promoting prolonged throughout companies, retail, communications, prescription drugs and defensive shopper names.

On the constructive facet, ComfortableBank Group rose and helped offset a few of the index strain. The firm stays one in all Tokyo’s most seen proxies for international AI funding sentiment due to its publicity to OpenAI, Arm, robotics, digital infrastructure and different large-scale know-how themes.

Fujikura, Ibiden, TDK, Lasertec, Sumitomo Electric, Furukawa Electric, Murata Manufacturing, Fanuc, Sumitomo Metal Mining, Daikin Industries, SMC, Mitsubishi Corp., Taiyo Yuden and Idemitsu Kosan have been additionally amongst shares reported increased.

The stronger names mirrored a number of overlapping themes: AI infrastructure, digital parts, optical fiber, data-center demand, nonferrous metals, equipment, buying and selling homes and power. Investors weren’t abandoning the AI story, however they have been changing into way more selective.

Fujikura and Furukawa Electric continued to signify the second wave of the AI commerce. Demand for optical fiber, cables, high-speed networks and data-center infrastructure stays structurally robust, however these shares have additionally develop into risky as a result of buyers now deal with them as a part of the broader international AI commerce.

Ibiden remained tied to superior chip substrates and packaging, whereas TDK, Murata Manufacturing and Taiyo Yuden have been supported by demand for digital parts utilized in servers, communications gear, autos and superior units.

Lasertec and different chip-related names drew help from the earlier U.S. session, when semiconductor-related shares confirmed power at the same time as broader sentiment remained cautious. However, Tokyo’s blended shut confirmed that Wall Street know-how positive factors weren’t robust sufficient to drive a broad rally in Japan.

Kioxia Holdings remained carefully watched as a gauge of confidence in reminiscence chips, high-bandwidth reminiscence, AI servers and data-center demand. The stock has been extraordinarily risky since July and continues to affect sentiment towards Japan’s AI {hardware} commerce.

The Reuters Tankan survey launched on September 9 supplied a stronger basic backdrop for producers. Business confidence amongst massive Japanese producers rose to plus 21 in September from plus 18 in August, reaching its highest stage since December 2021.

The enchancment was pushed by sturdy semiconductor and data-center demand, displaying that AI-related spending remains to be flowing into Japanese business regardless of current volatility in share costs. The survey strengthened the argument that Japan’s company sector stays resilient at the same time as markets battle with currencies and charges.

The Reuters Tankan is watched as a number one indicator for the Bank of Japan’s personal quarterly Tankan survey. Its enchancment means that the BOJ might have extra confidence that corporations can proceed investing and elevating costs, which might help the case for additional coverage normalization.

Still, the fairness market didn’t deal with the survey as sufficient to offset rapid dangers. Investors have been extra targeted on the yen’s power, oil’s surge and the chance that each the BOJ and the Federal Reserve might tighten coverage in September.

The yen traded round 153.65 to the dollar, near the seven-month excessive of 152.89 reached yesterday. The foreign money has rallied sharply in September as buyers positioned for sooner BOJ price hikes, attainable repatriation of abroad funds by Japanese buyers, and continued strain from Washington for a stronger yen.

The stronger yen has modified the market’s steadiness. Earlier in the summertime, buyers apprehensive that yen weak spot close to 160 to 164 would enhance import prices, revive intervention threat and drive the BOJ to tighten. Now, the priority is that the yen’s fast rebound might cut back exporters’ earnings help and set off unwinding of carry trades.

The yen carry commerce has been some of the essential international market themes. Investors who borrowed yen cheaply to purchase higher-yielding belongings abroad face strain when the yen strengthens and Japanese yields rise. A disorderly unwind might drive promoting throughout threat belongings, together with equities and bonds.

Reuters famous that yen quick positions stay vital, though they’ve fallen from July highs. That means additional yen power might nonetheless set off further place unwinding, particularly if the BOJ indicators extra price will increase past September.

For Japanese equities, the yen’s rise is a double-edged drive. It helps households and import-dependent corporations by decreasing the price of imported gas, meals, uncooked supplies and shopper items. But it hurts exporters by reducing the yen worth of abroad earnings.

Automakers, equipment makers, electronic-component suppliers and precision-equipment corporations had benefited when the dollar was close to 160. The transfer towards 153 forces buyers to reassess earnings assumptions, even when abroad demand stays stable.

For households, the stronger yen is useful however not enough. Food, gasoline, electrical energy, transport and repair costs stay excessive, and oil’s transfer towards $100 threatens to offset a few of the reduction from foreign money appreciation.

Oil was the opposite main macro threat on September 9. Brent crude rallied towards $100 a barrel as assaults intensified within the Middle East, stoking inflation fears forward of carefully watched U.S. shopper value knowledge.

For Japan, oil close to $100 is a critical menace as a result of the nation imports most of its power. Higher crude costs feed into gasoline, electrical energy, aviation gas, delivery, logistics, chemical substances and manufacturing.

The stronger yen can cushion the affect, nevertheless it can not absolutely neutralize a pointy oil enhance. If crude stays close to $100, corporations might face renewed strain to boost costs, and households might see increased power and transport prices.

Energy-related shares akin to Idemitsu Kosan and resource-linked names benefited from increased crude costs, however the broader Japanese financial system is damage by power inflation. That is why oil power can help a couple of sectors whereas weighing on general market sentiment.

The Middle East battle stays central to the inflation outlook. Any escalation affecting the Strait of Hormuz, the Red Sea or regional power infrastructure might push oil costs increased and revive the imported inflation shock that unsettled markets earlier in the summertime.

The Bank of Japan’s September 17-18 assembly is now the principle home coverage occasion. Traders broadly anticipate the BOJ to boost its coverage price by 25 foundation factors to 1.25%, however the extra essential query is what Governor Kazuo Ueda says in regards to the tempo of additional tightening.

Markets are watching whether or not Ueda presents a September hike as a one-off adjustment or the subsequent step in a extra sustained normalization cycle. That steerage will matter for the yen, JGB yields, banks, exporters and development shares.

The BOJ stored its coverage price at 1% on the July 30-31 assembly, however board member Hajime Takata dissented in favor of elevating it to 1.25%. Since then, Tokyo inflation, producer costs, stronger wages, upgraded GDP knowledge and the yen’s volatility have elevated expectations for one more transfer.

Japan’s revised April-June GDP knowledge confirmed stronger development than initially estimated, whereas July actual wages posted their strongest enhance since 2021. Those figures help the BOJ’s view that Japan could also be transferring nearer to a self-sustaining wage-price cycle.

At the identical time, family circumstances stay uneven. Wage development is enhancing, however shoppers nonetheless face excessive costs for requirements. The BOJ should decide whether or not inflation is being supported by stronger home demand or pushed primarily by exterior prices akin to oil and import costs.

Japanese authorities bond yields stay close to multi-decade highs. The 10-year JGB yield has just lately hovered round its highest stage in about 30 years, whereas shorter-dated yields have risen as markets value in BOJ tightening.

Higher yields help banks by enhancing lending margins and funding earnings, however they strain development shares by elevating the low cost price utilized to future earnings. They additionally enhance authorities debt-servicing prices and complicate fiscal coverage.

Banks and monetary shares have benefited from the prospect of upper charges, however the sector shouldn’t be resistant to volatility. A fast rise in JGB yields can create valuation losses on bond holdings and lift considerations about financial development.

The authorities’s fiscal place stays carefully watched. Prime Minister Sanae Takaichi’s administration is making an attempt to mix family reduction with a long-term funding agenda targeted on semiconductors, synthetic intelligence, power safety, protection, shipbuilding, robotics, area and different strategic sectors.

The technique helps most of the corporations tied to Japan’s AI and industrial-policy story, together with semiconductor-equipment makers, supplies suppliers, power-system companies, data-center infrastructure corporations and superior producers.

However, increased rates of interest make the funding query extra essential. Rising debt-servicing prices cut back fiscal flexibility and enhance strain on the federal government to point out self-discipline within the finances course of.

TV Tokyo’s broader enterprise themes stay central to the market. Companies are nonetheless deciding how a lot of upper labor, power, logistics and supplies prices could be handed on to shoppers, whereas households are judging the financial system by whether or not wage positive factors really cowl each day bills.

The improved Reuters Tankan suggests producers are extra assured, particularly these tied to semiconductors and knowledge facilities. But consumer-facing corporations stay uncovered to the chance that increased costs will weaken demand.

Companies with pricing energy, robust manufacturers, steady demand or publicity to structural funding stay higher positioned. Firms with out pricing energy stay weak if wages, oil and imported prices rise sooner than gross sales.

The international backdrop remained blended. AP reported that Asian shares have been uneven as Brent crude approached $100, whereas South Korea’s Kospi gained 1.4%, supported by chip-related shopping for. That helped hold some AI-related sentiment alive in Tokyo, at the same time as Japan’s personal indexes slipped.

South Korea stays an essential reference level for Tokyo as a result of abroad buyers more and more deal with Japanese chip-equipment makers, South Korean reminiscence producers, Taiwanese foundries and U.S. AI shares as one related know-how commerce.

When South Korean reminiscence shares rise, Japanese semiconductor and AI-related shares usually obtain help. When Seoul weakens, Tokyo’s chip advanced can shortly come beneath strain.

U.S. markets additionally remained essential. Investors have been ready for U.S. CPI knowledge, which might decide whether or not the Federal Reserve raises charges at its September 15-16 assembly. Reuters stated merchants assign near even odds to a U.S. quarter-point hike or a maintain.

For Japan, the Fed determination issues as a result of it impacts U.S. yields, the dollar and international threat urge for food. A hawkish Fed might help the dollar and sluggish the yen’s rise, however it could additionally strain know-how valuations. A dovish Fed might strengthen the yen additional, easing import prices however hurting exporters.

That creates a sophisticated setup for Tokyo. A stronger yen is sweet for inflation reduction however dangerous for exporters. Lower international yields help development shares however might speed up yen power. Higher oil helps power shares however hurts households and most corporations.

The September 9 session captured that stress. AI and chip demand remained robust sufficient to help chosen shares, and producer sentiment improved. But oil close to $100, yen power close to seven-month highs and uncertainty earlier than main central-bank conferences stored the Nikkei and TOPIX barely decrease.

What to look at subsequent: whether or not the Nikkei can maintain above 65,000 after two straight declines, whether or not TOPIX stabilizes close to 4,050, and whether or not AI-related shopping for broadens past chosen names.

Investors will monitor Advantest, Tokyo Electron, ComfortableBank Group, Kioxia, Fujikura, Furukawa Electric, Ibiden, TDK, Murata Manufacturing and Lasertec for indicators of whether or not the AI commerce can take up the strain from the yen and rising oil.

The yen close to 153 to the dollar is now an important home market sign. Further appreciation would ease imported inflation however enhance strain on exporters and carry trades. A rebound towards 156 or 160 would help exporters however revive inflation and intervention considerations.

The BOJ assembly on September 17-18 will decide whether or not the yen rally continues. A 25-basis-point price enhance is broadly anticipated, however steerage on future hikes will matter greater than the transfer itself.

Oil close to $100 is one other crucial threat. If crude breaks above that stage, Japan’s inflation outlook might worsen even with a stronger yen, rising strain on households, corporations and the BOJ.

Other key elements will likely be U.S. CPI, the September 15-16 Federal Reserve assembly, Middle East developments, JGB yields, Japan’s subsequent inflation knowledge and whether or not the Reuters Tankan enchancment is confirmed by official BOJ surveys.

September 9 confirmed that Japan’s AI and semiconductor story stays essentially robust, however the fairness market is now being pulled between stronger producer confidence, a quickly rising yen, oil-driven inflation threat and two central-bank conferences that might outline the subsequent part of buying and selling.

Source: CNBC