Nikkei falls 1% as tech rout deepens on Middle East uncertainty

Japan's Nikkei 225 slid 1% in early Thursday trading, with electronics and semiconductor stocks leading declines as lingering uncertainty over the Middle East conflict tempered optimism from diplomatic breakthroughs in Qatar.

The Nikkei 225 fell 1% to near 69,360 in early Thursday trading, dragged lower by technology stocks as Middle East uncertainty persisted despite diplomatic progress.

"The market is caught between two forces — de-escalation in the Middle East that's crushing energy costs, and a tech sector that's still pricing in the risk of a broader conflict disrupting supply chains," said Amir Anvarzadeh, senior equity strategist at Asymmetric Advisors.

The decline followed a volatile session on Wednesday when the Nikkei closed at 70,062.32, up 0.86%, after recovering from a 5% intraday plunge on Monday. Across the region, South Korea's KOSPI tumbled 5.1% to 7,877.45, with SK Hynix dropping 7.7% and Samsung Electronics falling 6.4%. Tokyo Electron, Japan's largest semiconductor equipment maker, lost 5.6% on Wednesday and extended losses in early Thursday trade.

The selloff comes as investors weigh competing signals: Brent crude has fallen to $70.89 a barrel, wiping out conflict-related premiums after US and Iranian negotiators made progress in Qatar toward de-escalating regional tensions. Yet the yen's slide to a 40-year low near 162.39 against the dollar has kept currency intervention risk elevated, with the Bank of Japan's July 30 policy meeting looming as the next major catalyst for Japanese equities.

Yen at 40-Year Low Adds Pressure

The yen's depreciation to levels not seen since the 1980s has created a dual dynamic for Japanese stocks. Exporters such as Toyota Motor Corp. and Sony Group Corp. benefit from the currency tailwind when translating overseas earnings, but the pace of the decline — the dollar has gained 13% against the yen over the past 12 months — has raised the probability of intervention by Japan's Ministry of Finance. The 10-year Japanese government bond yield surged six basis points to 2.77%, closing in on its multi-decade high of 2.80%, as markets priced in further tightening by the Bank of Japan.

Tech Selloff Spreads Across Asia

The technology rout extended beyond Japan. Taiwan's TAIEX fell 1.1%, weighed by a 1.8% drop in Taiwan Semiconductor Manufacturing Co. In mainland China, the Shanghai Composite slipped 0.9% to 4,075.58. Hong Kong's Hang Seng Index bucked the trend, rising 0.8% to 23,060.63, driven by an 8.7% surge in electric vehicle maker BYD on stronger delivery data.

European markets opened under pressure, with the STOXX 600 edging down 0.1% as French semiconductor materials firm Soitec and Germany's Aixtron posted losses. The selloff was cushioned by softer-than-expected eurozone inflation data — headline CPI fell to 2.8% year-on-year, below the 3.0% consensus — which fueled speculation about future European Central Bank accommodation.

US Treasury yields pulled back slightly, with the 10-year note at 4.47%, after a cooler ISM Manufacturing reading of 53.3. Federal Reserve Chair Kevin Warsh, speaking at the ECB's Sintra symposium, confirmed that US inflation expectations have eased but warned of a potential "family fight" over the path of terminal rates at the July FOMC meeting. Gold rebounded 1.1% to $4,082.40 an ounce, supported by the macro cooling in sovereign bond yields.

This article is for informational purposes only and does not constitute investment advice.