In a continuation of its declining trend, Japan’s Nikkei share average suffered losses for the third consecutive day on Wednesday, closing below the 38,000-point threshold for the first time since mid-February. Analysts point to rising tensions in the Middle East and a prudent approach by investors bracing for the impending company earnings season as the primary factors behind the slide.
The Nikkei settled at 37,961.80, denoting a 1.3% drop, marking its lowest finish since February 14 and positioning it for the most substantial weekly loss it has experienced since December of the previous year. The broader Topix followed suit, decreasing by a similar margin of 1.3% to settle at 2663.15.
Initially, the benchmark index began the trading session on an optimistic note, but it struggled to sustain its early gains. Investors displayed heightened caution throughout the week, with many keeping a close watch on developments from the Middle East, pondering over the uncertain repercussions that these events might have on global markets.
Japan’s earnings season is about to enter a critical phase, and market participants appear to be trading with strategic caution. Analysts, including Kenji Abe from Daiwa Securities, attribute some of the market weakness to companies unveiling their projections for the new fiscal year, prompting a spate of profit-taking in anticipation of corporate earnings reports. Chip-testing equipment manufacturer Advantest, one of the key players in the industry, is scheduled to report earnings in the coming week, drawing considerable attention from investors.
Meanwhile, U.S. stock markets offered little in the way of positive momentum, showing a mixed performance as Treasury yields continued their upward trend. Compounding investor concerns, Federal Reserve Chair Jerome Powell, during remarks made on Tuesday, emphasized the necessity for persistence in restrictive monetary policy, thereby reducing any lingering hopes for significant interest rate reductions within this year.
A closer look at the day’s market activity reveals that out of the 225 constituents of the Nikkei, a mere 32 managed to record gains. Semiconductor-related companies bore the brunt of the losses, with Advantest’s shares tumbling by 4.5%, Lasertec plummeting by 7.9%, and Tokyo Electron dropping by 1%, marking them as the major laggards of the index. Other notable decliners included Fanuc Corp, a manufacturer of factory automation equipment, which fell by 3.3%, and investment giant SoftBank Group, which saw its shares decline by 1.3%.
In contrast, amid the broad market downturn, a few companies managed to defy the odds. Resonac Holdings emerged as a significant gainer, with its stock leaping by 12%. This rally came after the chemical firm announced an upward revision to its revenue forecast for 2024.
The current market environment underscores the delicate balance investors must maintain in navigating geopolitical uncertainties, interpreting central bank signals, and assessing corporate health through earnings reports. The recent movement in the Nikkei reflects this complex interplay of global and domestic factors affecting investor sentiment and the ongoing caution that is likely to pervade the market as companies continue to come forth with their financial disclosures. As the week progresses, market watchers will be keenly monitoring not just the earnings but how these results align with forecasts and what they suggest about the economic path ahead for Japanese companies in an increasingly volatile international context.
