Japan’s Nikkei 225 Recovers from Midweek Tumble but Underlying Weakness Exposes a Market at Odds with Itself

Japan's Nikkei 225 posts a 1.2% Friday gain but weekly loss; semiconductor rally led by SoftBank and chip stocks masks domestic declines as yen weakness splits the market.

Japan’s Nikkei 225 closed the week at 68,557.73 points, a 1.20% gain on Friday that masked a 1.70% loss from the previous Friday. The index spent the first three days sliding, touching 66,819.05 on Wednesday before a furious two-day rally led by semiconductor heavyweights erased most of the damage. Yet beneath the surface, the market told a far less reassuring story: 21 of the 33 industry groups on the Tokyo exchange fell on Friday, and the narrowness of the rebound highlighted a bifurcation between export-oriented tech names and domestic consumer stocks.

The turnaround began Thursday, when the Nikkei jumped 1.38% to 67,744 and the broader Topix added 0.35% to 4,020. Wall Street provided the spark — a rally in U.S. chip stocks spilled over to Tokyo, amplified by news that the initial public offering of South Korean memory-chip maker SK Hynix on the New York Stock Exchange was more than seven times oversubscribed. Thursday’s gains were also fueled by Bain Capital’s decision to sell its entire stake in Kioxia Holdings, yet the stock still rose more than 8%. Murata Manufacturing climbed 5%, Advantest jumped 5.9%, Tokyo Electron gained 5.5%, and Fujikura added 2.4%.

Friday extended the tech rally with a more selective push. SoftBank Group soared 10.65% to 6,370 yen, while Kioxia added 5.4%, Murata rose 5.5%, Tokyo Electron advanced 2.2%, and Advantest edged up 3.3%. Primary contributor to the day’s index gain — roughly 1,000 points — came from just three stocks: SoftBank, Tokyo Electron and Advantest. Among smaller names, semiconductor supplier SUMCO Corp. surged 15.40% to 5,244 yen, and Mitsubishi Motors unexpectedly joined the winners with a 9.44% jump to 361.80 yen.

Losses were concentrated in domestic-oriented plays. Sapporo Holdings fell 3.70%, Fast Retailing dropped 3.59%, and Ryohin Keikaku declined 3.44%. The divergence reflects the persistent drag from the yen, which slid to historically low levels against the dollar. USD/JPY ended the week at 161.66, down 0.44% on Friday, while EUR/JPY fell 0.37% to 184.93. Over the past 12 months the greenback has appreciated 13% against the yen, breaking above 160 — a threshold that historically has prompted intervention from the Bank of Japan. The weak currency boosts exporters’ repatriated profits but squeezes import-reliant domestic firms, creating a two-speed market that complicates any broad-based rally.

Market anxiety, while elevated, receded late in the week. The Nikkei Volatility Index, which measures implied volatility on Nikkei options, had spiked to a three-month high of 43.82 points midweek but pulled back to 38.13 by Friday’s close — a 12.98% decline reflecting traders’ tentative return to calmer expectations. “The market is difficult to read right now,” said Kohei Onishi of Mitsubishi UFJ Morgan Stanley Securities. He pointed to technical selling related to the SK Hynix ADR listing and ETF dividend distributions as factors muddying the picture, adding that the index is likely to hover around the 70,000 level for the time being.

Chart-watchers see a clear technical ceiling near 68,782, the old record high from June that was tested this week. The 25-day moving average sits at roughly 68,600, acting as near-term resistance. Yet the longer-term trend remains intact: the Nikkei is up more than 72% from its 52-week low of 39,459.62 points hit in July 2025, and the 50-day moving average at 66,055 and the 200-day average at 55,959 both lie well below the current price. The relative strength index at 51.6 signals neutral territory, neither overbought nor oversold.

All eyes now turn to the Bank of Japan’s policy meeting on July 30, which could shift the yen trajectory and, with it, the earnings outlook for Japan Inc.’s export champions. Any signal from the BoJ on rate normalization or currency intervention will likely determine whether the Nikkei can reclaim the 70,000 mark or whether the week’s narrow, chip-led recovery proves to be a mere pause in a deeper correction.