TOKYO - The Nikkei Stock Average reversed early gains and closed 295.77 points, or 0.4%, lower at 62,417.88 on May 11 after surging more than 1,600 points earlier in the day, as selling spread across AI-related and semiconductor shares despite record highs in the U.S. Nasdaq and Philadelphia Semiconductor Index, while concerns over Middle East tensions and U.S. interest rate policy weighed on investor sentiment.
TOPIX managed a modest rebound despite weakness in major technology names, while the Tokyo Stock Exchange Prime Market saw 865 advancing issues against 660 decliners. Trading value totaled approximately 8.97 trillion yen.
Market analysts said AI and semiconductor-related stocks, which had risen sharply in recent weeks, faced profit-taking pressure as investors became increasingly cautious.
Concerns surrounding the Middle East also contributed to the market's reversal. Crude oil futures rose during overseas trading after comments from U.S. President Donald Trump rejecting Iran’s response to a U.S. proposal, while Israeli Prime Minister Benjamin Netanyahu reportedly stated that operations against Iran were not over. Rising oil prices triggered a risk-off mood in Japanese equities, although markets in South Korea and Taiwan remained comparatively resilient.
Attention is also turning to upcoming talks between U.S. Treasury Secretary Scott Bessent, Prime Minister Koichi Takai, and Finance Minister Katayama, with investors closely watching for discussions related to fiscal policy, interest rates, and currency issues.
Investor sentiment was further affected by changing expectations for U.S. monetary policy following last week's U.S. employment report. Several major financial institutions pushed back forecasts for Federal Reserve rate cuts, citing persistent inflation and resilient economic activity.
Goldman Sachs reportedly shifted its expectations for rate cuts from September and December this year to December and March next year, while Bank of America delayed its outlook even further, suggesting cuts may not begin until the second half of next year.
Analysts noted that while consumer sentiment indicators in the United States have weakened, spending and corporate investment remain relatively strong, particularly in sectors linked to major AI firms. Some market participants are now beginning to consider the possibility that the Fed may not cut rates this year, with a few even warning of the risk of future rate hikes if inflation remains elevated.
Among individual stocks, Nintendo plunged more than 8% after issuing earnings forecasts for the fiscal year ending March 2027 that fell well below market expectations. Investors were disappointed that planned price increases would not be sufficient to offset rising memory costs and margin pressure.
Toyota Motor continued to weaken, falling 1.4% and marking another fresh year-to-date low, while Sony Group rebounded sharply after announcing collaboration plans with Taiwan Semiconductor Manufacturing Co. in the field of physical AI technologies, prompting buying interest after recent declines.
Market participants are also closely monitoring the U.S. triple witching event scheduled for May 15, when stock index futures, stock index options, and individual stock options expire simultaneously. Analysts warned that large speculative positions in call options tied to AI-related stocks could amplify market volatility if investors begin unwinding positions.
Some strategists continue to argue that the AI-driven bull market still has years to run, while others are drawing comparisons to the final stages of the dot-com bubble, highlighting growing divisions among market participants over the sustainability of the rally.
Investors this week are expected to focus on U.S. inflation data, retail sales figures, and any additional changes in expectations for Federal Reserve policy, which analysts say could determine the next direction for global equity markets.
Source: CNBC
