The Tokyo stock market, heading into the final week of July, faces three critical events: a concentrated wave of earnings reports from major technology companies in Japan, the U.S., and South Korea; the Bank of Japan’s monetary policy meeting; and the U.S. Federal Open Market Committee (FOMC) meeting. Market participants are projecting the Nikkei Stock Average to trade within a range of 63,000 yen on the downside and 67,000 yen on the upside.
This week, the Nikkei average initially surged on dip-buying in AI and semiconductor stocks early in the week but succumbed to selling pressure from the middle of the week onward. It ultimately closed at 64,611.15, up 470.03 points, or 0.7%, from the previous Friday. After Alphabet’s strong earnings report, its stock price fell in the U.S. market, reinforcing views of overheating in AI investment and a “sell on the fact” mentality. This led to an expansion of selling, primarily in semiconductor-related issues, toward the weekend.
Following this trend, the biggest focus next week will be the full-scale earnings season for AI and semiconductor-related companies both domestically and internationally. Results announced so far—from South Korea’s Samsung Electronics’ preliminary figures, Taiwan’s TSMC, U.S.-based Alphabet, and Japan’s Disco (6146.T)—have all been strong, but a pattern of stock prices falling after the announcements has been repeated. A growing view in the market is that “overheating in terms of valuations is being recognized anew,” and the tendency to treat strong earnings as a sell-on-the-fact event is likely to prevail next week as well.
Domestically, earnings reports from major semiconductor stocks and AI infrastructure-related companies will be concentrated. Overseas, results are due from South Korean players like SK Hynix and Samsung Electronics, as well as hyperscalers including Meta, Microsoft, and Amazon. Additionally, earnings from semiconductor-related names such as Arm Holdings and Qualcomm are scheduled. The stock price reactions following these announcements are expected to dictate the overall market’s direction.
In the factory automation (FA) sector, caution had preceded Yaskawa Electric Corporation’s (6506.T) earnings announcement, but attention is now on whether upcoming results will trigger a reassessment of the sector. Interest is also gathering on earnings from the information services sector, where excessive fears of AI substitution have intensified, and from bank stocks, which are expected to benefit from rising interest rates.
On the monetary policy front, it is almost certain that the Bank of Japan will keep its policy rate unchanged at its meeting on July 30-31. However, some reports have surfaced suggesting that the BOJ could accelerate the pace of rate hikes beyond market expectations, driven by rising crude oil prices amid worsening Middle East tensions and the yen’s depreciation. Market participants are wary, noting that “if the BOJ signals a dovish stance, there is a significant risk of a rapid swing toward yen weakness.” There is an expectation that the BOJ may show a proactive stance toward bringing forward rate hikes this time. This situation appears somewhat negative for the Tokyo stock market.
In the U.S., the FOMC will meet on July 28-29. The probability of a rate hike has risen to over 30% in the market. However, with new Federal Reserve Chair Warsh yet to clearly articulate his economic outlook or policy stance, concerns over a communication misstep with financial markets could intensify if a rate hike is actually implemented. If a hike is postponed this time, it is expected to provide some relief to the market.
In the currency market, the view is emerging that the dollar-yen pair will remain firm. While yen-buying pressure persists due to caution over Japan’s currency intervention and expectations of increased investment in domestic financial assets, the dollar is likely to test its upside on continued buying as inflation acceleration due to higher crude oil prices comes into focus. The dollar-yen rate has risen to the 163-yen level for the first time since December 1986, significantly exceeding the 160-yen mark considered a “defense line.” Although the administration of Prime Minister Takaichi has issued a series of verbal warnings against yen weakness, if the view spreads that the BOJ’s rate-hike pace will be slow, yen selling could instead become dominant.
On the economic indicators front, Japan will release key data including the June Corporate Services Price Index on July 27, and the June unemployment rate, job-to-applicant ratio, June industrial production, and the July Consumer Price Index for Tokyo’s 23 wards on July 31. Overseas, preliminary April-June GDP figures for the Eurozone and the U.S., along with the U.S. core Personal Consumption Expenditures (PCE) price index, are due on July 30. China’s July manufacturing and non-manufacturing PMI and the Eurozone’s July Consumer Price Index are scheduled for July 31.
In the U.S. market at the end of this week, the Dow Jones Industrial Average rose 235.60 points from the previous day to 51,947.25, while the Nasdaq fell 161.87 points to 24,975.82. Reports that mediating countries were exploring a resumption of peace talks with Iran pushed crude oil prices lower, providing a boost to the Dow. However, semiconductor stocks, including Intel which had reported earnings, broadly declined, weighing on the Nasdaq.
Escalating tensions in the Middle East also continue to require close monitoring. This week, Yemen’s pro-Iran Houthi armed group declared an immediate “naval blockade” with the Red Sea in mind, and WTI crude oil futures surpassed the $90 per barrel mark for the first time in about a month and a half. In an environment where higher crude oil prices are easily perceived as inflationary pressure, this could also impact the Federal Reserve’s monetary policy management.
Thus, with a complex mix of factors including corporate earnings, monetary policy, and geopolitical risks, nervous trading is expected to continue in the Tokyo market next week. In particular, the market’s reaction to earnings reports from AI and semiconductor-related companies is likely to serve as a crucial litmus test determining the short-term direction of the market.