The Japanese stock market faced significant turbulence as the Nikkei 225 index plunged sharply on February 25, 2024, concluding the trading session down 430.95 points or 1.11%, closing at 38,345.99. This decline can be primarily attributed to the overwhelming bearish sentiment driven by poor performances of semiconductor stocks, which are closely tied to the U.S. technology sector.
Investors woke to unsettling news from the previous day's U.S. market close, where the Dow Jones Industrial Average rose slightly by 33.19 points, but the Nasdaq Composite fell dramatically by 237.08 points. Reports indicated concerns about economic slowdown following disappointing economic indicators, particularly from Michigan University's consumer sentiment index, which only deepened fears surrounding future growth prospects.
Initial trading saw the Nikkei drop to 38,131.79 during intraday sessions, reflecting investor apprehensions after the Nasdaq's alarming decline, particularly among tech and semiconductor shares. Reflecting broader concerns, stocks related to the semiconductor sector such as Advantest Corporation saw substantial selling pressure, significantly impacting the Nikkei's performance. Advantest alone accounted for approximately 124 points on the Nikkei's drop.
Halfway through the trading session, the Nikkei bounced slightly from its earlier lows, prompted by opportunistic buying as the sell-off seemed to stabilize temporarily. Still, trading volumes remained low, nearing 2.5 trillion yen, reflecting cautious investor sentiment. Alongside Advantest, other major losers included Renesas Electronics and Softbank Group, contributing to the overall negative market tone.
Interestingly, the day also saw some contrasts where notable gains were exhibited by major Japanese trading houses. According to reports, investor Warren Buffett expressed intent to amplify investments in five major Japanese trading firms: Mitsubishi Corporation, Itochu Corporation, Marubeni Corporation, Sumitomo Corporation, and Mitsui & Co. This announcement positively influenced their stock prices amid the broader bearish market, with Mitsubishi Corporation closing up by 214 yen.
The market's divergence can also be traced to currency movements, where the dollar-yen rate struggled around the 150 yen mark, reflecting broader market uncertainties and prompting some investors to favor the yen due to concerns over Japan's declining stock valuations. Before the market close, analysts pointed out the possibility of testing the year's recent low at 38,444.58 points, emphasizing the fragile state of market confidence going forward.
Sector-wise, non-ferrous metals, oil & coal, and machinery led the declines, illustrating how pervasive the sell-off was across different industries. Meanwhile, sectors like wholesale trade and pharmaceuticals managed to muster gains as stockpile opportunities emerged amid the broader market volatility.
The story of the Japanese stock market's sharp decline showcases the fragility of investor sentiment amid global economic uncertainties. With inflation indicators expected soon, including the pivotal PCE price index in the U.S., experts caution the markets may still have considerable volatility to contend with as they react to external pressures and domestic economic challenges.