TOKYO – Japan’s Nikkei share average experienced a significant drop on Friday, mirroring declines on Wall Street. The robust economic data from the US has heightened concerns that persistent inflation may delay anticipated interest rate cuts by the Federal Reserve. Here’s a detailed look at the market movements and contributing factors.
Market Performance
Nikkei and Topix Indices
- Nikkei Average: The Nikkei fell by 1.2% to 38,624.59 as of 0145 GMT, after initially dipping as much as 1.9%.
- Topix Index: The broader Topix index also dropped by 0.6%.
US Market Influence
- Wall Street Declines: All three main US equity indexes fell overnight. The Dow Jones Industrial Average led the decline with a 1.5% drop.
- Manufacturing Data Impact: US manufacturers reported a surge in prices for various inputs, suggesting a potential increase in goods inflation in the coming months.
Bond Yield Impact
- US 10-Year Bond Yield: The benchmark US 10-year bond yield rose to a peak of 4.498%, the highest in over a week. This rise occurred as traders reduced their expectations for multiple Federal Reserve rate cuts this year, now anticipating only one quarter-point reduction instead of two.
Expert Insights
Nomura Securities Analysis
- Kazuo Kamitani’s View: Kazuo Kamitani, an equities strategist at Nomura Securities, stated that Japanese stock prices are currently influenced by US yield levels. Despite the decline, he pointed out support from the Nikkei’s 25-day moving average of around 38,300.
Market Outlook
- Potential for Recovery: Kamitani suggested that if the 25-day moving average holds firm, the Nikkei could stabilize or even see gains next week. The indicator is expected to turn upward by the close of trading.
Weekly Performance and Historical Context
Weekly Decline
- Nikkei’s Weekly Slide: The Nikkei is on track for a 1.2% decline this week. However, it remains up more than 15% for the year, maintaining its position among the top-performing global markets.
Historical High
- All-Time High: On March 22, the Nikkei reached an all-time high of 41,087.75 before pulling back over the following month to a low of 36,733.06.
Sector Performance
Chip Stocks Decline
- Previous Rally: Chip stocks, which had rallied the previous day due to Nvidia’s earnings, saw sharp declines on Friday.
- Major Losses:
- Advantest dropped by 3.5%.
- Tokyo Electron fell by 2.4%.
- Lasertec lost 3.5%.
Conclusion
The Japanese stock market, represented by the Nikkei and Topix indices, has been significantly influenced by economic developments in the US, particularly rising inflation concerns and changing expectations for Federal Reserve rate cuts. While the market has seen a decline this week, the Nikkei remains one of the best-performing markets globally for the year. Investors are closely watching US bond yields and economic data for further guidance.
References:
- The Sun’s royal photographer Arthur Edwards
- Nomura Securities
