Tokyo Stocks Lose Ground as Exporters Face Stronger Yen

The broader TOPIX fell 3.69 points, or 0.09%, to 4,046.64, showing that the wider market also lacked momentum. The decline was modest, but it came after sharp swings earlier in the week and reflected continued uncertainty over currencies, oil prices, Bank of Japan policy and the global interest-rate outlook.

The Nikkei opened lower at 65,087, briefly recovered in morning trading and was up 226 points at the lunch break at 65,495, helped by buying in selected semiconductor and AI-related shares. The rebound faded in the afternoon, and the index returned to negative territory before closing lower for a second straight session.

The intraday pattern showed that investors were willing to buy parts of the AI trade on weakness, but not enough to overcome the macro pressure from the yen, oil and interest rates. The market’s inability to hold morning gains also suggested that investors remained cautious before U.S. inflation data and next week’s BOJ and Federal Reserve meetings.

Prime Market breadth was weaker than the index move implied. At 1 p.m., decliners outnumbered gainers, with 833 stocks falling against 668 rising, and the imbalance remained a sign that the market was not broadly recovering despite early strength in some technology names.

Nikkei CNBC-style market commentary would likely focus on the uneven nature of the session. Semiconductor and AI-related shares initially supported the index, but selling in Advantest, Fast Retailing, Tokyo Electron, Recruit Holdings and other high-impact Nikkei components pulled the benchmark back down.

Advantest was one of the largest drags on the Nikkei, subtracting more than 230 points from the index around early afternoon. The chip-testing equipment maker remains one of Japan’s most direct beneficiaries of AI semiconductor demand, but its large weighting also makes it one of the biggest sources of downside whenever investors take profits or become cautious about valuations.

Tokyo Electron also weighed on the index. The semiconductor-equipment maker remains central to Japan’s role in global chip manufacturing, but investors have become more selective as rising yields and currency swings make it harder to justify high valuations across the entire AI supply chain.

Fast Retailing fell and was another major negative contributor. The retailer often weighs heavily on the price-weighted Nikkei, and its weakness showed that pressure was not limited to semiconductor names.

Recruit Holdings, Terumo, Konami Group, Nintendo, KDDI, Nitori Holdings, Sony Group, Trend Micro, Olympus, Astellas Pharma, Nomura Research Institute and Kikkoman were also among stocks reported lower during the session, showing that selling extended across services, retail, communications, pharmaceuticals and defensive consumer names.

On the positive side, SoftBank Group rose and helped offset some of the index pressure. The company remains one of Tokyo’s most visible proxies for global AI investment sentiment because of its exposure to OpenAI, Arm, robotics, digital infrastructure and other large-scale technology 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 were also among shares reported higher.

The stronger names reflected several overlapping themes: AI infrastructure, electronic components, optical fiber, data-center demand, nonferrous metals, machinery, trading houses and energy. Investors were not abandoning the AI story, but they were becoming much more selective.

Fujikura and Furukawa Electric continued to represent the second wave of the AI trade. Demand for optical fiber, cables, high-speed networks and data-center infrastructure remains structurally strong, but these stocks have also become volatile because investors now treat them as part of the broader global AI trade.

Ibiden remained tied to advanced chip substrates and packaging, while TDK, Murata Manufacturing and Taiyo Yuden were supported by demand for electronic components used in servers, communications equipment, vehicles and advanced devices.

Lasertec and other chip-related names drew support from the previous U.S. session, when semiconductor-related shares showed strength even as broader sentiment remained cautious. However, Tokyo’s mixed close showed that Wall Street technology gains were not strong enough to drive a broad rally in Japan.

Kioxia Holdings remained closely watched as a gauge of confidence in memory chips, high-bandwidth memory, AI servers and data-center demand. The stock has been extremely volatile since July and continues to influence sentiment toward Japan’s AI hardware trade.

The Reuters Tankan survey released on September 9 provided a stronger fundamental backdrop for manufacturers. Business confidence among large Japanese manufacturers rose to plus 21 in September from plus 18 in August, reaching its highest level since December 2021.

The improvement was driven by robust semiconductor and data-center demand, showing that AI-related spending is still flowing into Japanese industry despite recent volatility in share prices. The survey strengthened the argument that Japan’s corporate sector remains resilient even as markets struggle with currencies and rates.

The Reuters Tankan is watched as a leading indicator for the Bank of Japan’s own quarterly Tankan survey. Its improvement suggests that the BOJ may have more confidence that companies can continue investing and raising prices, which would support the case for further policy normalization.

Still, the equity market did not treat the survey as enough to offset immediate risks. Investors were more focused on the yen’s strength, oil’s surge and the possibility that both the BOJ and the Federal Reserve could tighten policy in September.

The yen traded around 153.65 to the dollar, close to the seven-month high of 152.89 reached the previous day. The currency has rallied sharply in September as investors positioned for faster BOJ rate hikes, possible repatriation of overseas funds by Japanese investors, and continued pressure from Washington for a stronger yen.

The stronger yen has changed the market’s balance. Earlier in the summer, investors worried that yen weakness near 160 to 164 would increase import costs, revive intervention risk and force the BOJ to tighten. Now, the concern is that the yen’s rapid rebound could reduce exporters’ earnings support and trigger unwinding of carry trades.

The yen carry trade has been one of the most important global market themes. Investors who borrowed yen cheaply to buy higher-yielding assets overseas face pressure when the yen strengthens and Japanese yields rise. A disorderly unwind could force selling across risk assets, including equities and bonds.

Reuters noted that yen short positions remain significant, even though they have fallen from July highs. That means further yen strength could still trigger additional position unwinding, especially if the BOJ signals more rate increases beyond September.

For Japanese equities, the yen’s rise is a double-edged force. It helps households and import-dependent companies by reducing the cost of imported fuel, food, raw materials and consumer goods. But it hurts exporters by lowering the yen value of overseas earnings.

Automakers, machinery makers, electronic-component suppliers and precision-equipment companies had benefited when the dollar was near 160. The move toward 153 forces investors to reassess earnings assumptions, even if overseas demand remains solid.

For households, the stronger yen is helpful but not sufficient. Food, gasoline, electricity, transport and service prices remain high, and oil’s move toward $100 threatens to offset some of the relief from currency appreciation.

Oil was the other major macro risk on September 9. Brent crude rallied toward $100 a barrel as attacks intensified in the Middle East, stoking inflation fears ahead of closely watched U.S. consumer price data.

For Japan, oil near $100 is a serious threat because the country imports most of its energy. Higher crude prices feed into gasoline, electricity, aviation fuel, shipping, logistics, chemicals and manufacturing.

The stronger yen can cushion the impact, but it cannot fully neutralize a sharp oil increase. If crude remains near $100, companies may face renewed pressure to raise prices, and households could see higher energy and transport costs.

Energy-related shares such as Idemitsu Kosan and resource-linked names benefited from higher crude prices, but the broader Japanese economy is hurt by energy inflation. That is why oil strength can support a few sectors while weighing on overall market sentiment.

The Middle East conflict remains central to the inflation outlook. Any escalation affecting the Strait of Hormuz, the Red Sea or regional energy infrastructure could push oil prices higher and revive the imported inflation shock that unsettled markets earlier in the summer.

The Bank of Japan’s September 17-18 meeting is now the main domestic policy event. Traders widely expect the BOJ to raise its policy rate by 25 basis points to 1.25%, but the more important question is what Governor Kazuo Ueda says about the pace of further tightening.

Markets are watching whether Ueda presents a September hike as a one-off adjustment or the next step in a more sustained normalization cycle. That guidance will matter for the yen, JGB yields, banks, exporters and growth stocks.

The BOJ kept its policy rate at 1% at the July 30-31 meeting, but board member Hajime Takata dissented in favor of raising it to 1.25%. Since then, Tokyo inflation, producer prices, stronger wages, upgraded GDP data and the yen’s volatility have increased expectations for another move.

Japan’s revised April-June GDP data showed stronger growth than initially estimated, while July real wages posted their strongest increase since 2021. Those figures support the BOJ’s view that Japan may be moving closer to a self-sustaining wage-price cycle.

At the same time, household conditions remain uneven. Wage growth is improving, but consumers still face high prices for necessities. The BOJ must judge whether inflation is being supported by stronger domestic demand or pushed mainly by external costs such as oil and import prices.

Japanese government bond yields remain near multi-decade highs. The 10-year JGB yield has recently hovered around its highest level in about 30 years, while shorter-dated yields have risen as markets price in BOJ tightening.

Higher yields support banks by improving lending margins and investment income, but they pressure growth shares by raising the discount rate applied to future earnings. They also increase government debt-servicing costs and complicate fiscal policy.

Banks and financial shares have benefited from the prospect of higher rates, but the sector is not immune to volatility. A rapid rise in JGB yields can create valuation losses on bond holdings and raise concerns about economic growth.

The government’s fiscal position remains closely watched. Prime Minister Sanae Takaichi’s administration is trying to combine household relief with a long-term investment agenda focused on semiconductors, artificial intelligence, energy security, defense, shipbuilding, robotics, space and other strategic sectors.

The strategy supports many of the companies tied to Japan’s AI and industrial-policy story, including semiconductor-equipment makers, materials suppliers, power-system firms, data-center infrastructure companies and advanced manufacturers.

However, higher interest rates make the funding question more important. Rising debt-servicing costs reduce fiscal flexibility and increase pressure on the government to show discipline in the budget process.

TV Tokyo’s broader business themes remain central to the market. Companies are still deciding how much of higher labor, energy, logistics and materials costs can be passed on to consumers, while households are judging the economy by whether wage gains actually cover daily expenses.

The improved Reuters Tankan suggests manufacturers are more confident, especially those tied to semiconductors and data centers. But consumer-facing companies remain exposed to the risk that higher prices will weaken demand.

Companies with pricing power, strong brands, stable demand or exposure to structural investment remain better positioned. Firms without pricing power remain vulnerable if wages, oil and imported costs rise faster than sales.

The global backdrop remained mixed. AP reported that Asian shares were uneven as Brent crude approached $100, while South Korea’s Kospi gained 1.4%, supported by chip-related buying. That helped keep some AI-related sentiment alive in Tokyo, even as Japan’s own indexes slipped.

South Korea remains an important reference point for Tokyo because overseas investors increasingly treat Japanese chip-equipment makers, South Korean memory producers, Taiwanese foundries and U.S. AI shares as one connected technology trade.

When South Korean memory shares rise, Japanese semiconductor and AI-related stocks often receive support. When Seoul weakens, Tokyo’s chip complex can quickly come under pressure.

U.S. markets also remained important. Investors were waiting for U.S. CPI data, which could determine whether the Federal Reserve raises rates at its September 15-16 meeting. Reuters said traders assign close to even odds to a U.S. quarter-point hike or a hold.

For Japan, the Fed decision matters because it affects U.S. yields, the dollar and global risk appetite. A hawkish Fed could support the dollar and slow the yen’s rise, but it would also pressure technology valuations. A dovish Fed could strengthen the yen further, easing import costs but hurting exporters.

That creates a complicated setup for Tokyo. A stronger yen is good for inflation relief but bad for exporters. Lower global yields support growth stocks but may accelerate yen strength. Higher oil supports energy shares but hurts households and most companies.

The September 9 session captured that tension. AI and chip demand remained strong enough to support selected shares, and manufacturer sentiment improved. But oil near $100, yen strength near seven-month highs and uncertainty before major central-bank meetings kept the Nikkei and TOPIX slightly lower.

What to watch next: whether the Nikkei can hold above 65,000 after two straight declines, whether TOPIX stabilizes near 4,050, and whether AI-related buying broadens beyond selected names.

Investors will monitor Advantest, Tokyo Electron, SoftBank Group, Kioxia, Fujikura, Furukawa Electric, Ibiden, TDK, Murata Manufacturing and Lasertec for signs of whether the AI trade can absorb the pressure from the yen and rising oil.

The yen near 153 to the dollar is now the most important domestic market signal. Further appreciation would ease imported inflation but increase pressure on exporters and carry trades. A rebound toward 156 or 160 would support exporters but revive inflation and intervention concerns.

The BOJ meeting on September 17-18 will determine whether the yen rally continues. A 25-basis-point rate increase is widely expected, but guidance on future hikes will matter more than the move itself.

Oil near $100 is another critical risk. If crude breaks above that level, Japan’s inflation outlook could worsen even with a stronger yen, increasing pressure on households, companies and the BOJ.

Other key factors will be U.S. CPI, the September 15-16 Federal Reserve meeting, Middle East developments, JGB yields, Japan’s next inflation data and whether the Reuters Tankan improvement is confirmed by official BOJ surveys.

September 9 showed that Japan’s AI and semiconductor story remains fundamentally strong, but the equity market is now being pulled between stronger manufacturer confidence, a rapidly rising yen, oil-driven inflation risk and two central-bank meetings that could define the next phase of trading.

Source: CNBC