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Nikkei faces downturn amid earnings and profit-taking

May 8, 2024

Key points

  • The Nikkei share average fell by 1.6% to 38,202.37, erasing previous gains.
  • Corporate earnings and U.S. economic indicators significantly influenced market movements.

Japan’s Nikkei share average dipped over 1% on Wednesday, retreating from the multi-week highs observed in the last session. This movement came as a result of mixed corporate earnings, which highlighted clear winners and losers, alongside investors waiting for more information on the direction of U.S. interest rates.

Picture: Nikkei prices see a drop as recorded in VT Markets trading app.

The Nikkei closed down by 1.6%, a drop of 632.73 points, effectively nullifying the gains from Tuesday. Meanwhile, the broader Topix index also experienced a decline, dropping 1.45% to end at 2706.43.

U.S. job growth slowdown

Previously, the benchmark index had rallied to a three-week high on Tuesday, buoyed by an unexpected slowdown in U.S. job growth which tempered market expectations and hinted at possible rate cuts by the Federal Reserve later this year. If U.S. inflation stabilises and the likelihood of rate reductions increases, it may prompt Japanese equities to track Wall Street’s upward trend.

Also read: Optimism fuels global stocks, Yen weakness persists 

Despite reaching a peak of 41,087.75 earlier in the year, the Nikkei sharply fell in April. Tuesday’s performance in U.S. technology stocks also added pressure, contributing to the downward trend. Tokyo Electron saw a decline of 1.5%, and SoftBank Group dropped by 1.7%.

Market reaction

With limited new policy information available, Wednesday’s market was primarily driven by corporate earnings and profit-taking. Shares of Nintendo tumbled by 5.4% following the announcement of a successor to its Switch console, whereas Mitsubishi Heavy Industries experienced a significant slump of 7.3%.However, there were some areas of resilience.

Toyota Motor managed to reduce its losses, closing down only 0.6% after reporting a record quarterly operating profit. Similarly, shares of Fast Retailing declined by 2.3% despite an initial boost on Tuesday due to a report of increased domestic sales in April.

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