Japan’s Nikkei Falls 2％ amid Global Chip Sell-Off, Surging Yen

Reuters

12:32 JST, July 18, 2024

TOKYO (Reuters) – Japan’s Nikkei share average fell sharply on Thursday, as chip-related stocks joined a global sell-off in the sector, while a strengthening yen weighed on automakers and other exporters.

The Nikkei dropped 2% to 40,277.86 by the midday break. Earlier in the day, it fell to 40,112.56 for the first time since July 2, although it never threatened the 40,000 psychological barrier. A week earlier, it had jumped to a record high of 42,426.77.

Volatility spiked , hitting the highest level since May 9 at one point.

Chip-making-equipment giant Tokyo Electron 8035.T was the biggest drag on the Nikkei, as well as the biggest percentage decliner, tumbling 9.5%. Peers Disco 6146.T and Screen Holdings 7735.T skidded 9% and 8.5%, respectively.

The outsized drag from tech was clear in the relative performance of the broader Topix index , which fell 0.93%. A sub-index of growth shares G slid 1.4%, while a value share gauge lost 0.5%.

U.S. chip shares sold off sharply overnight, with the Philadelphia SE Semiconductor Index .SOX sliding 6.81%, after a report that the United States was mulling tighter curbs on exports of advanced semiconductor technology to China.

Remarks from Republican presidential nominee Donald Trump saying key production hub Taiwan should pay the United States for its defense then deepened the rout.

Among the Tokyo Stock Exchange’s 33 industry groups, electric machinery – which includes Tokyo Electron – was the worst performer, dropping 2.8%. Precision machinery was next with a 2.7% slide, followed by machinery, which lost 2.4%.

“For today, it should stay this way until the close, with weakness in chip shares leading to weakness in the Nikkei,” said Maki Sawada, a strategist at Nomura Securities.

However, earnings from Taiwan chip giant TSMC 2330.TW in the Asian afternoon bear watching, with Disco also reporting financial results after the closing bell, Sawada noted.

“From next week, when the earnings season properly kicks off, we should see some differentiation in stock performance,” she said.

Meanwhile, the transport equipment sector declined 2.3%.

The yen has surged from as low as 161.81 per dollar JPY=EBS on July 10 to as high as 155.375 on Thursday, amid several rounds of what appears to have been official Japanese intervention. A stronger yen reduces the value of exporters’ overseas revenues.

Toyota Motor 7203.T fell 2.6%, Nissan 7201.T dropped 1.5% and Mazda 7261.T tumbled 4.2%.