TOKYO - Japan's Nikkei 225 Stock Average extended its decline for a third consecutive trading session on Monday, October 26, as selling in semiconductor and artificial intelligence-related shares continued to weigh on the market, while energy companies attracted buying interest following a surge in global oil prices.
The Nikkei closed at 62,189.65, down 503.51 points, or 0.80%, from Friday. The broader TOPIX index moved in the opposite direction, gaining 7.17 points to 3,972.98, reflecting a market in which weakness remained concentrated in a relatively small group of heavily weighted technology stocks.
The divergence highlighted an increasingly selective approach among investors, who are reassessing the enormous capital commitments being made to artificial intelligence infrastructure while shifting some funds toward energy, trading houses and other companies positioned to benefit from elevated commodity prices.
The Nikkei has now lost more than 3,100 points from its October 16 close, with uncertainty over AI investment returns, persistent inflation concerns and geopolitical tensions contributing to volatile trading.
Technology and semiconductor-related companies continued to face selling pressure following losses on Wall Street late last week. Investors have become increasingly concerned about the financial sustainability of the global AI investment boom, particularly as major technology companies commit substantial sums to data centers, processors and computing infrastructure.
In Monday morning trading, silicon wafer manufacturer Sumco fell approximately 4%, semiconductor equipment maker Kokusai Electric declined nearly 4%, and Screen Holdings also recorded substantial losses.
The weakness was particularly damaging to the Nikkei because of the heavy weighting of technology companies in the index. Although more Nikkei constituents were rising than falling earlier in the session, declines among major semiconductor-related shares outweighed gains elsewhere.
The focus has increasingly shifted from expectations of rapid AI revenue growth to questions about whether companies can generate sufficient returns and cash flow to justify their spending.
Energy companies and trading houses were among the stronger performers as investors assessed the implications of continued instability in the Middle East.
Inpex, Japan's major oil and gas producer, gained almost 5% in morning trading, while engineering company JGC Holdings advanced more than 4%. Mitsubishi Corp also rose more than 4% during the morning session.
Crude oil prices retreated on Monday following reports of diplomatic efforts to ease regional tensions, although Brent crude remained above $110 a barrel after a sharp increase during the previous week.
Elevated crude prices can improve earnings prospects for upstream energy producers, but they also raise costs for Japanese manufacturers, transportation operators and consumers. Japan's substantial dependence on imported energy makes sustained oil price increases an important risk to economic growth and inflation.
The broader market showed greater resilience than the Nikkei suggested. On the Tokyo Stock Exchange's Prime Market, 816 stocks advanced, compared with 682 declining and 49 unchanged. Of the exchange's 33 industry categories, 22 finished higher.
Mining, petroleum and coal products, wholesale trading and shipping were among the strongest sectors. By contrast, nonferrous metals, electrical equipment and securities companies were among the weakest.
Advantest was the biggest negative contributor to the Nikkei, subtracting approximately 274 points from the index. Tokyo Electron reduced it by another 176 points, while Fast Retailing accounted for a further 154-point decline.
On the positive side, Toyota Tsusho contributed approximately 20 points, followed by Mitsubishi Corp and Itochu. Gains in these companies helped support the broader market but were insufficient to offset the selling concentrated in large technology stocks.
The contrasting performance illustrates how the market is moving beyond a single investment theme, with earnings resilience and exposure to commodity prices becoming increasingly important in stock selection.
Attention is turning to the Bank of Japan's two-day monetary policy meeting on October 29 and 30, with expectations that policymakers will leave the benchmark interest rate unchanged at 1.25% while signaling that further tightening remains possible.
Economists are increasingly considering a potential increase in December as higher energy costs, persistent inflation and stronger wage growth complicate the central bank's assessment of economic conditions.
The Bank of Japan is expected to present updated economic and inflation forecasts on October 30. Investors will be watching for changes to its inflation outlook and indications of how quickly interest rates could move higher.
The dollar traded around 157 yen during Monday's session, with currency markets also awaiting the U.S. Federal Reserve's policy decision later this week.
A more hawkish signal from the Bank of Japan could support the yen and affect exporters, while higher domestic interest rates may benefit some financial institutions but increase borrowing costs for businesses and households.
Japan's corporate earnings season is gathering momentum, with investors looking for evidence that companies can maintain profitability despite increased energy costs, currency volatility and higher financing expenses.
Companies scheduled to release results on October 26 included Koei Tecmo Holdings, Stanley Electric, Fujiya and Canon Marketing Japan.
Attention will shift on October 27 to a larger group of companies, including Shin-Etsu Chemical, Canon, Nitto Denko, Shimano, Chugai Pharmaceutical and Capcom.
Technology earnings will be particularly important. After the recent decline in semiconductor-related shares, investors are looking for signs that demand remains sufficiently strong to support capital expenditure and earnings forecasts.
Internationally, upcoming results from Alphabet, Microsoft and Amazon will provide further indications of whether the massive expansion in AI infrastructure is translating into sustainable revenue and profits.
The remainder of the week is expected to be dominated by economic announcements and monetary policy decisions in Japan and the United States.
Japan's corporate services price index for September is scheduled for October 27, offering further evidence of inflationary pressures within the service economy.
The Federal Reserve will announce its policy decision on October 28 in the United States, followed by U.S. inflation and economic growth data on October 29.
Japan will conclude the week with a particularly heavy economic calendar on October 30, including unemployment figures, industrial production, Tokyo consumer inflation data and the Bank of Japan's policy decision.
The combination of major corporate earnings, monetary policy announcements and geopolitical uncertainty creates the potential for significant market movements, particularly among semiconductor stocks and other companies whose valuations depend heavily on expectations of future growth.
