Japan's key stock index, the Nikkei 225, experienced a marginal decline on Monday, pressured by a sell-off in technology shares. Investors remained cautious about the elevated valuations of companies linked to the artificial intelligence (AI) boom. The index dipped less than 0.1% to settle at 50,473.84 by the midday trading recess.
Tech Heavyweights Weigh on Market Sentiment
The primary drag on the Nikkei came from major technology and investment firms. SoftBank Group, a prominent startup investor, led the losses with a 2.5% slide, single-handedly pulling the index down by 93 points. It was followed by chip-sector giants Advantest and Tokyo Electron, which fell 0.9% and 1% respectively. Together, these two chip-related stocks subtracted a combined 79 points from the index.
Equities strategist Fumika Shimizu of Nomura Securities noted a prevailing sense of overheating in high-tech stocks, making them vulnerable to profit-taking. "The underlying trend of falling tech stocks remains intact," Shimizu observed.
Broader Market Shows Resilience Despite Tech Weakness
Interestingly, the overall market breadth told a more positive story. On the Nikkei, 162 of its 225 components advanced, while only 59 declined and four remained unchanged. The broader Topix index actually gained 0.4% to reach 3,376.43, outperforming the Nikkei.
This resilience was supported by a more stable yen, which paused its recent strengthening trend. Additionally, positive cues from Wall Street's gains on Friday provided a tailwind. The market is also digesting growing expectations that the Bank of Japan (BOJ) could hike interest rates as early as next week.
Sectoral Performance: Real Estate Shines, Banks Retreat
While chip stocks faltered, shares of companies tied to data center demand surged, anticipating increased infrastructure needs from AI. Fujikura soared 5.7% and Fuji Electric jumped 4.1%.
The top-performing sector was real estate, which climbed 2.6% among the Tokyo Stock Exchange's 33 industry groups. Conversely, the banking sector lost 0.7%, becoming the worst performer for the day. This decline came after the sector rallied to its highest level since 1999 last week, driven by rate hike expectations from the BOJ.
Market Outlook: Sideways Trading Anticipated
Market strategists express caution about the near-term trajectory. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, described the Nikkei as feeling "heavy." He expects stocks to trade sideways for the time being, warning that "a rise from here would come with high risk."
The Nikkei had scaled a record peak of 52,636.87 in early November before succumbing to a wave of profit-taking, particularly in AI-related shares. The current trading reflects a market in consolidation, balancing optimism about economic normalisation with concerns over stretched valuations in the tech space.
