Nikkei plunges below 38,000 for first time in two months

Nikkei share average: Japan's stock market experienced a significant decline on Wednesday, with the Nikkei share average closing below 38,000 points for the first time since February. This three-day losing streak was attributed to a combination of factors.

Geopolitical tensions

Uncertainties surrounding the situation in the Middle East cast a shadow of caution on investor sentiment.

Profit-taking before earnings season

As major companies like Advantest prepare to release their earnings reports next week, some investors opted to lock in profits before potential market fluctuations. Analyst Kenji Abe of Daiwa Securities anticipates "some market weakness" during the earnings season, prompting profit-taking behavior.

Limited support from US markets

Mixed performance in US markets, coupled with Federal Reserve Chair Jerome Powell's comments about potentially prolonged monetary tightening, offered little encouragement to the Nikkei. Powell's stance dampened hopes for significant interest rate cuts in the near future.

The Nikkei closed down 1.3 per cent at 37,961.80, marking its lowest closing level since February 14, 2024, and potentially leading to its biggest weekly decline since December 2022. The broader Topix also witnessed a 1.3 per cent decrease, closing at 2663.15.

Trading remained cautious throughout the day, with gains made in the morning session quickly fading. Only 32 of the Nikkei's 225 constituents managed to close higher.

Chip-related companies suffered the most significant losses, with Advantest, Lasertec, and Tokyo Electron experiencing drops of 4.5 per cent, 7.9 per cent, and 1 per cent respectively. Other notable decliners included Fanuc Corp (factory automation) and SoftBank Group (AI investment). Resonac Holdings stood out as a rare gainer, surging 12 per cent after revising its revenue forecast upwards for 2024.

(With Reuters inputs.)