Nikkei Slides as Samsung Shock Hits AI Trade

The Nikkei 225 Stock Average closed at 68,256.96, down 1,480.73 points, extending its decline for a second session. The index briefly turned positive in morning trading but came under renewed pressure in the afternoon as South Korea’s Kospi deepened its losses, pulling Japan’s semiconductor and AI-related shares lower.

The broader TOPIX also fell, but its decline was smaller than the Nikkei’s, showing that selling was concentrated in technology-heavy names. On the Tokyo Stock Exchange Prime Market, 814 stocks rose while 708 declined and 36 were unchanged, meaning more than half of Prime Market issues still advanced despite the Nikkei’s steep fall. Trading value was heavy at 10.0537 trillion yen.

Nikkei CNBC and NQN described the day as a “Samsung shock.” South Korea’s Kospi fell sharply after Samsung Electronics forecast a 19-fold jump in April-June operating profit but failed to satisfy investors who had already priced in extremely strong AI-related memory demand. The Kospi’s fall briefly exceeded 8%, triggering a circuit breaker, while Samsung Electronics and SK Hynix both dropped heavily.

The reaction showed how high expectations have become for the AI trade. Samsung’s profit forecast was strong, but investors focused on whether memory prices and AI data-center investment can keep rising at the pace assumed by markets. Reuters reported that Samsung estimated second-quarter operating profit at 89.4 trillion won, but its shares fell as investors reassessed the durability of the AI-driven chip cycle.

That concern spilled quickly into Tokyo. Kioxia Holdings fell 11% to 72,400 yen, approaching the 70,000 yen level that market participants are watching as a key defensive line. The stock has now dropped about 40% from its June 22 high of 112,700 yen, leaving many recent buyers at risk of losses if the price breaks decisively below 70,000 yen.

Kioxia remains a focal point for the entire Japanese AI trade. Market participants said the stock’s longer-term earnings expectations have not collapsed, with several analyst target prices still above 100,000 yen. SMBC Nikko Securities has also pointed to potential buying demand related to the TOPIX periodic review in October, a factor that could attract attention later in the year.

Other semiconductor and AI-related shares also fell, including Tokyo Electron, Advantest and makers of electronic components such as multilayer ceramic capacitors. The selling came despite a firm U.S. market overnight, showing that Tokyo investors are now watching South Korean chip shares as closely as Wall Street for signals about the AI cycle.

Banks moved against the market decline. Mitsubishi UFJ Financial Group rose to a new listing high after Nikkei reported that President Hironori Kamezawa aims to lift return on equity into the 10% range. Higher domestic interest rates also supported megabanks and regional banks, as rising yields improve the outlook for lending margins and investment income.

Japan’s bond market remained central to the bank rally. Long-term yields have been near multi-decade highs, and although a 30-year government bond auction was viewed as solid, concerns over fiscal expansion continued to put upward pressure on yields. Japan Post Bank also attracted attention because higher yen interest rates could improve returns on its large bond portfolio, even though valuation losses remain a risk.

The yen stayed under pressure, trading around the 161-yen to 162-yen range against the dollar. Reuters said the yen bounced back from the weaker side of 162 per dollar, near 40-year lows, but traders remained alert for possible intervention. The weak currency continues to support exporters, but it raises import costs for fuel, food and raw materials and complicates the Bank of Japan’s policy outlook.

The currency and rate backdrop is also supporting a rotation into lagging large-cap shares. Toyota Motor rose for a fourth straight session, helped by yen weakness, lower oil prices and hopes for a recovery in sales volume. Hitachi also held firm after Citi raised its target price, while Sony Group and software-related names such as NEC showed signs of recovery after earlier underperformance linked to AI disruption concerns.

The rotation was visible in the Nikkei-TOPIX relationship. The Nikkei had surged relative to TOPIX during the AI rally, pushing the NT ratio higher in late June, but that move has started to reverse as investors shift money from semiconductor-heavy index names into banks, automakers, industrials, software, trading houses and other value-oriented stocks.

Policy and household-economy issues remained in the background. The weak yen continues to increase import costs, while higher interest rates are changing the outlook for banks, borrowers and government finances. TV Tokyo’s business coverage has been focusing on the impact of inflation, wages, energy costs and asset prices on households, a theme that remains important as the Bank of Japan weighs further normalization after raising its policy rate to 1% in June.

The global backdrop was mixed. Reuters said Asian stocks declined broadly as Samsung’s forecast triggered a reassessment of AI valuations, while MSCI’s Asia-Pacific index excluding Japan fell and Taiwan also weakened. Oil prices edged higher but remained near levels seen before the latest Iran-related tensions, offering some relief to energy-importing Japan.

The main points to watch next are whether Kioxia can hold the 70,000 yen line, whether Samsung Electronics and SK Hynix stabilize after the shock selloff, whether ETF distribution-related selling pressure on July 8 and July 10 weighs on Tokyo shares, and whether banks and value stocks continue to cushion the broader market.

For Tokyo investors, July 7 showed that Japan’s equity rally has entered a more selective phase. The AI trade remains powerful, but it is no longer immune to disappointment. The next market trend may depend on whether money keeps rotating into banks, Toyota, Hitachi and other lagging large-cap names, or whether renewed weakness in memory and semiconductor shares pulls the broader market lower.

Source: CNBC

Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: newsonjapan.com