Nikkei Risks Further Decline; Japanese Tech Stocks Remain Under Pressure

The Nikkei 225 index faces pressure heading into Wednesday's trading (Oct 14), following a 1.82% (1,253.40-point) drop in the previous session that left it at 67,777.52. This decline extends the Japanese market's negative trend to four consecutive trading sessions. Investors are now monitoring the potential for a market recovery amidst headwinds from global tech stocks, rising funding costs, and international economic uncertainty.

Pressure on the Japanese stock market stems primarily from the technology and semiconductor sectors, following a sell-off in U.S. tech stocks. Investor concerns regarding the high valuations of artificial intelligence (AI) companies are mounting, particularly as high interest rates threaten to inflate investment costs and constrain corporate expansion. Consequently, Japanese tech stocks closely linked to the global semiconductor industry remain at risk of further downward pressure.

Beyond the technology sector, rising global oil prices—driven by escalating geopolitical tensions in the Middle East—are also clouding the outlook for the Japanese market. As a nation heavily reliant on energy imports, Japan faces the risk of increased production costs and inflationary pressure when oil prices remain high. This situation could impact corporate earnings and prompt investors to exercise greater caution when taking positions in the stock market.

As trading begins on Wednesday, investor attention is focused on whether the Nikkei can sustain recovery momentum following its sharp decline. A rebound remains possible if buying emerges for stocks that have undergone corrections; however, negative sentiment stemming from Wall Street, oil prices, and global interest rate trends could limit gains. Market participants are also awaiting the release of U.S. consumer inflation (CPI) data, which could determine the Federal Reserve's policy direction and influence financial market movements across Asia. Impact on the US Dollar and Japanese Yen

US Dollar (USD): Potentially supported if global uncertainty boosts demand for safe-haven assets and expectations for high US interest rates persist. However, lower-than-expected CPI data could weigh on the dollar.