TOKYO - Tokyo stocks diverged sharply on July 29, with the Nikkei 225 closing at 61,434.19, down 930.73 points, or 1.49%, as selling in artificial intelligence and semiconductor-related heavyweights continued, while the broader TOPIX rose as investors bought back banks, domestic-demand shares and selected value stocks.
The TOPIX gained 10.44 points, or 0.26%, to 3,974.03, showing that the day’s weakness was concentrated in a narrow group of high-priced technology shares rather than the entire market. The split between the two indexes was unusually stark, with the price-weighted Nikkei dragged lower by a small number of major AI-related stocks while the broader market showed signs of stabilization.
The Nikkei’s decline followed a 2,566.27-point plunge on July 28, when the index fell 3.95% to 62,364.92. Although selling pressure eased late on July 29, the index still recorded another large decline and remained near levels not seen since late May.
Nikkei CNBC’s market framing centered on the continuing unwind of crowded AI and semiconductor positions. Investors remained focused on whether the recent falls in Kioxia Holdings, Advantest, Tokyo Electron, SCREEN Holdings, Kokusai Electric, SoftBank Group and related shares represent a correction in valuations or the start of a deeper reassessment of the AI investment cycle.
The session again showed that Tokyo’s market is being driven by global semiconductor positioning. Investors have been reducing exposure to the U.S. Philadelphia Semiconductor Index, South Korea’s memory-chip names and Japan’s chip-equipment and AI-infrastructure suppliers as a single trade. That has made the Nikkei especially vulnerable because of the high weighting of technology-related stocks in the index.
The Nikkei briefly fell more than 3% during the day before cutting its losses. The recovery from the lows suggested that some short-covering and bargain buying emerged after two days of heavy selling, but investors were not yet willing to call a bottom in the AI trade.
Tokyo Electron and SoftBank Group were the biggest drags on the Nikkei. Market data showed that the two stocks together subtracted about 880 points from the index, underscoring how much the benchmark is being moved by a narrow group of high-priced shares.
Tokyo Electron remained under pressure as investors reassessed the outlook for semiconductor manufacturing equipment after recent concern over AI capital spending, Chinese competition and order momentum. The company is still expected to benefit from long-term investment in advanced chips, but its share price has become highly sensitive to any doubts about future equipment demand.
SoftBank Group also weighed heavily on the index. The stock has become one of Tokyo’s most visible proxies for global AI sentiment because of the company’s technology investments and exposure to large-scale artificial intelligence infrastructure themes. When overseas investors reduce AI exposure, SoftBank often amplifies the Nikkei’s decline.
Kioxia Holdings remained one of the most closely watched stocks after its recent collapse and extreme intraday swings. The memory-chip maker has become a barometer of confidence in AI servers, data centers and high-bandwidth memory, but concerns over speculative trading, margin positions and Chinese competition have kept the stock under pressure.
Advantest was another key focus because it was scheduled to report earnings after the close. Investors were watching whether the chip-testing equipment maker could provide enough evidence of strong AI-related demand to counter the recent selling. Its guidance is likely to influence sentiment toward the broader semiconductor complex on July 30.
SCREEN Holdings and Kokusai Electric also came under pressure, with both among the weaker names in Tokyo trading. Selling in those shares reflected growing caution toward semiconductor equipment suppliers whose valuations had risen sharply during the first-half AI rally.
The weakness in AI-related names contrasted with gains in the broader market. The TOPIX’s rise showed that investors were rotating into banks, insurers, transportation, consumer shares and other sectors less directly tied to the volatile semiconductor trade.
Bank shares remained supported by expectations that Japan’s interest-rate environment will stay favorable for lenders. The Bank of Japan raised its policy rate to 1% in June, and markets continue to expect another increase later this year if inflation pressure from the weak yen and higher import costs persists.
Higher rates can improve bank lending margins after decades of ultra-low returns, although investors remain cautious because further increases would also raise funding costs and could increase stress in bond markets. The financial sector’s strength helped support the TOPIX even as the Nikkei remained under pressure.
Domestic-demand and consumer-related shares also attracted buying. The move suggested that some investors were rotating into companies with steadier earnings, stronger pricing power or less exposure to the AI cycle after the sharp fall in high-growth technology shares.
The yen remained near its weakest level in about 40 years. The dollar traded in the 163-yen range around 5 p.m., keeping currency intervention risk firmly in focus. The yen’s weakness has become one of the central issues for both equity and bond investors.
A weak yen supports exporters by increasing the value of overseas earnings when converted into Japanese currency, but the benefit is increasingly being outweighed by the damage from higher import costs. Fuel, food, raw materials, chemicals and industrial components all become more expensive in yen terms.
That makes the currency a direct problem for households and smaller companies. Gasoline, electricity, food distribution and imported consumer goods are all vulnerable to another round of price increases if the yen stays weak and oil prices remain elevated.
Japanese government bond yields stayed under close watch ahead of the Bank of Japan’s July 30-31 policy meeting. The 10-year yield remained below the politically sensitive 3% level, but investors are alert to any renewed rise caused by inflation, fiscal spending concerns or doubts over the central bank’s independence.
The BOJ is widely expected to keep rates unchanged at the July meeting, but markets will focus on its tone. The central bank is likely to maintain a warning that inflation could exceed forecasts, especially because producer prices, import costs and household inflation expectations remain elevated.
The policy dilemma is becoming more difficult. Keeping rates unchanged could worsen pressure on the yen, but moving too quickly could deepen market volatility, raise government financing costs and weaken business investment.
Prime Minister Sanae Takaichi’s administration is also under pressure from financial markets. Reuters reported that the government’s expansionary fiscal stance, tax-cut proposals and large-scale investment agenda have contributed to investor concern over the yen and bond yields.
The administration’s economic roadmap calls for more than 370 trillion yen in public and private investment through fiscal 2040, targeting semiconductors, artificial intelligence, energy security, defense, shipbuilding, robotics, space and other strategic sectors. The plan is designed to lift Japan’s growth potential, but markets remain concerned about funding and fiscal credibility.
The government has tried to reassure investors that the BOJ retains authority over specific monetary policy tools. That clarification followed concern that earlier policy language could be interpreted as political pressure on the central bank to delay further rate increases.
For households, the policy debate is becoming more urgent. TV Tokyo’s business coverage has continued to focus on inflation, wages, energy costs and the gap between nominal pay increases and actual living standards. Wage growth has improved, but many households remain exposed to rising food, fuel and utility costs.
The government is also weighing relief measures for consumers, including steps related to food prices and consumption-tax pressure. Such measures could support household spending, but they would also add to the fiscal debate if replacement revenue is not clearly identified.
Corporate earnings remained another major theme. Investors were watching results from Japanese technology and industrial companies, including Advantest, while also monitoring U.S. megatech earnings for evidence that AI spending remains strong enough to support supplier profits.
The market’s concern is not that AI demand has disappeared. Instead, investors are questioning whether valuations in chip equipment, memory, components and AI infrastructure moved too far ahead of confirmed orders, margins and cash flow.
Global markets remained cautious ahead of the U.S. Federal Reserve’s policy decision. The dollar stayed firm as investors waited for guidance on U.S. interest rates, while higher American yields continued to make it difficult for the yen to recover.
Oil prices also remained an important external risk. Crude had eased from recent highs but stayed sensitive to developments in the Middle East, especially shipping routes through the Strait of Hormuz and the Red Sea. For Japan, any renewed oil spike would worsen the trade balance and add to import-driven inflation.
The main points to watch next are whether the Nikkei can hold above 61,000 after two heavy declines, whether the TOPIX continues to show resilience, and whether selling in Tokyo Electron, SoftBank Group, Kioxia, Advantest, SCREEN Holdings and Kokusai Electric begins to stabilize.
Investors will also monitor Advantest’s earnings reaction, Tokyo Electron’s upcoming results, the yen in the 163-yen range, and the risk of further currency warnings from the Ministry of Finance.
The BOJ’s July 30-31 meeting is the central domestic event. Markets will focus on the outlook report, inflation forecasts, Governor Kazuo Ueda’s comments on the yen and whether the central bank signals that another rate increase remains likely later this year.
The broader question for Tokyo is whether the AI selloff remains a narrow valuation correction or becomes a wider confidence shock. July 29 showed that the broader market can still attract buying, but the Nikkei will struggle to recover while its largest technology names remain under pressure.
Source: CNBC
