Next week’s Tokyo stock market will see a collision of two major events: a concentrated wave of earnings reports from technology companies in Japan, the U.S., and South Korea, and monetary policy meetings at the central banks of Japan and the United States. Market participants are voicing expectations for the Nikkei Stock Average to trade within a range of 63,000 yen on the downside to 67,000 yen on the upside. Amid growing caution over overheated valuations in artificial intelligence (AI)-related stocks, the biggest focus will be on whether the pattern of “sell the news” — where stock prices fall even after strong earnings are announced — will continue.
The Nikkei Average ended this week at 64,611.15, up 470.03 points from the previous Friday. Early in the week, buying on dips centered on AI and semiconductor stocks led the advance, supported by gains in U.S. semiconductor shares and a rising South Korean market. At one point, the index surged more than 1,300 points, but subsequently faced persistent selling into strength, ultimately resulting in a round-trip week. Particularly toward the weekend, concerns over excessive AI investment resurfaced after Alphabet, which reported strong earnings, declined in the U.S. market. Hyperscaler stocks fell across the board, significantly dragging down the Nasdaq index. Additionally, South Korea’s earlier-than-expected announcement of strengthened trading regulations on leveraged ETFs for individual stocks weighed on the Tokyo market via declines in the South Korean market, particularly in semiconductor shares.
Escalating tensions in the Middle East continue to smolder as a destabilizing factor for markets. Yemen’s Iran-backed Houthi rebels declared an immediate “naval blockade” in the Red Sea, pushing WTI crude oil futures above the $90 per barrel level for the first time in about a month and a half. However, reports over the weekend of efforts to resume peace talks with Iran caused oil prices to decline. While this served as a boost for the Dow Jones Industrial Average, weakness in semiconductor stocks led by Intel weighed on the Nasdaq.
Next week’s earnings season will see market attention focused even more intensely on developments at AI and semiconductor-related companies. Among the results announced so far — including preliminary earnings from South Korea’s Samsung Electronics, Taiwan’s TSMC, U.S.-based Alphabet, and Japan’s Disco (6146.T) — the content has generally been solid. However, cases where stock prices declined after the announcements have occurred one after another, bringing valuation overheating back into market consciousness. Whether this trend continues next week will be the focal point. Domestically in Japan, earnings reports from major semiconductor stocks and AI infrastructure-related companies will be concentrated. Overseas, in addition to South Korea’s SK hynix and Samsung Electronics, earnings from mega-cap tech companies such as Meta, Microsoft, and Amazon will follow in rapid succession. Furthermore, earnings from semiconductor-related names such as Arm Holdings and Qualcomm are also scheduled, making it a crucial week for gauging the reality of AI investment.
Meanwhile, attention is also focused on whether earnings from factory automation (FA)-related stocks — where caution heightened following Yaskawa Electric Corporation’s (6506.T) earnings announcement — will lead to a reassessment. Additionally, earnings from the information services sector, where excessive AI substitution fears are intensifying, and bank stocks, which benefit from rising interest rates, are likely to draw market interest.
On the monetary policy front, the main scenario is for both Japan and the U.S. to hold policy interest rates steady. The Bank of Japan will hold its monetary policy meeting on the 30th and 31st. While the market views a rate hold as virtually certain, the yen’s depreciation against the backdrop of worsening Middle East conditions has become a new flashpoint. This week, some media reports indicated that the Bank of Japan has shown a flexible stance toward accelerating the pace of rate hikes beyond the market’s expectation of roughly once every six months. Under these circumstances, if the Bank of Japan exhibits a dovish stance, the risk of rapid yen depreciation increases. On the other hand, if it shows a proactive stance toward front-loading rate hikes, it could have a somewhat negative impact on the Tokyo stock market.
In the United States, the Federal Open Market Committee (FOMC) will meet on the 28th and 29th. The probability of a rate hike is said to have risen to over 30% currently, but since new Fed Chair Warsh has not clearly articulated his economic outlook or policy stance, there remains room for concern over insufficient communication with financial markets should the Fed actually proceed with a hike. If a rate hike is deferred, a short-term sense of relief is expected to spread through markets. However, with crude oil price increases stemming from Middle East tensions easily perceived as inflationary pressure, the Fed is highly likely to maintain hawkish messaging.
In currency markets, the dollar-yen pair is expected to show resilience. Having recently risen to the 163-yen level for the first time since December 1986, it is well above the 160-yen level regarded as a “defense line,” keeping wariness toward currency intervention by Japanese monetary authorities persistent. Yen-weakening restraint comments from the Takaichi administration have also continued, maintaining dollar-selling, yen-buying pressure. However, if the view spreads that the Bank of Japan’s rate hike pace will be sluggish, yen selling could instead become dominant. While U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data showed slowing growth, as long as the Fed maintains its stance of not easing inflation-fighting measures, the dollar-buying trend is likely to continue, with the dollar-yen pair expected to test lower levels while pursuing upside.
Next week’s notable schedule is packed with economic indicators and events. On the 27th, Japan’s June Corporate Services Price Index, U.S. June Durable Goods Orders, and Germany’s July IFO Business Climate Index will be released. The FOMC meeting begins on the 28th, with the policy rate announcement and Fed Chair Warsh’s press conference scheduled for the 29th. The 30th will be a significant day, with the Bank of Japan’s monetary policy meeting commencing alongside the release of preliminary April-June quarter GDP figures for Japan, the U.S., and Europe. Then on the 31st, the Bank of Japan meeting results will be announced along with Governor Kazuo Ueda’s press conference, while simultaneously Japan’s June unemployment rate, industrial production, July Tokyo-area Consumer Price Index, China’s manufacturing and non-manufacturing PMI, and the Eurozone’s July CPI will be released.
For the Tokyo market, the content of tech company earnings both domestically and internationally, and the market’s reaction to them, will be the most critical variable. Will the valuation adjustment in the AI and semiconductor sector run its course, or will the sense of “sell the news” intensify further, deepening the correction phase? What sense of balance will the central banks of Japan and the U.S. demonstrate as they navigate between inflation and economic growth? Including the trajectory of Middle East tensions and crude oil prices, it will be a week that once again tests investors’ risk tolerance.