Nikkei soars 6% in technical rebound, but macro uncertainty lingers
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Japan’s equity markets staged a powerful rebound on Tuesday, with the Nikkei 225 rallying 6.03% to close at 33,012.58—its strongest daily gain since August 2023. The broader Topix index surged 6.26% to 2,432.02. After Monday’s steep sell-off, which drove the Nikkei to its lowest level in 18 months, investors saw an opportunity to rotate back into oversold positions, particularly in tech and financials. However, despite the impressive bounce, market strategists caution that
sentiment remains fragile and largely speculative.
The recovery in Japanese equities coincided with improved risk appetite in U.S. index futures, which climbed during Asian trading hours. The S&P 500 and Nasdaq futures gained over 1%, while the Philadelphia Semiconductor Index (SOX) closed 2.7% higher in the previous U.S. session, offering a bullish cue for global tech. Japanese chip-related names responded sharply: Tokyo Electron rallied 8.7%, while Advantest spiked 11.8%. Data center proxy Fujikura led gains with a 19.4% jump, benefiting from risk-on flows into infrastructure-exposed stocks.
Financials also rebounded strongly, reversing some of their recent losses driven by fears of tightening global liquidity and delayed rate hikes. Mitsubishi UFJ Financial Group added 10.7% and Mizuho Financial Group climbed 13.5%. Notably, all 33 industry sub-indexes of the Tokyo Stock Exchange closed in the green, and 99% of the 1,600 stocks on the TSE’s prime market ended higher—clear signs of a broad-based, sentiment-driven rally.
However, underlying fundamentals remain clouded by macro headwinds. Japan’s equity complex remains roughly 13% below pre-tariff levels following President Trump’s sweeping trade measures. These tariffs, now impacting nearly all major U.S. trading partners including Japan, have triggered volatility across global risk assets. Prime Minister Shigeru Ishiba’s direct appeal to President Trump on Monday underscores Japan’s diplomatic concern over the long-term implications of this protectionist escalation.
Despite today’s rally, analysts such as Naoki Fujiwara of Shinkin Asset Management warn that the rebound was likely led by speculative short covering and futures-driven flows. A trading halt triggered by Osaka Exchange’s circuit breaker further indicates the mechanical, rather than fundamental, nature of the rebound. Fujiwara noted that “bets by speculative investors will likely continue to dominate short-term market direction.”
Technically, both the Nikkei and Topix remain in correction territory, and global uncertainties around trade policy, inflationary pressures, and central bank responses could limit the sustainability of the current bounce. The yen’s strength against the dollar, which has fallen 0.63% to 145.92, also adds headwinds to Japan’s export-heavy corporate landscape.
For now, the short-term momentum remains upward, supported by technical oversold conditions and easing sentiment in U.S. futures. But traders and institutional investors should remain cautious and monitor high-beta sectors like tech and financials for signs of durability or renewed fragility in this rally. Risk remains skewed to the downside unless clearer macro direction emerges in the days ahead.
The recovery in Japanese equities coincided with improved risk appetite in U.S. index futures, which climbed during Asian trading hours. The S&P 500 and Nasdaq futures gained over 1%, while the Philadelphia Semiconductor Index (SOX) closed 2.7% higher in the previous U.S. session, offering a bullish cue for global tech. Japanese chip-related names responded sharply: Tokyo Electron rallied 8.7%, while Advantest spiked 11.8%. Data center proxy Fujikura led gains with a 19.4% jump, benefiting from risk-on flows into infrastructure-exposed stocks.
Financials also rebounded strongly, reversing some of their recent losses driven by fears of tightening global liquidity and delayed rate hikes. Mitsubishi UFJ Financial Group added 10.7% and Mizuho Financial Group climbed 13.5%. Notably, all 33 industry sub-indexes of the Tokyo Stock Exchange closed in the green, and 99% of the 1,600 stocks on the TSE’s prime market ended higher—clear signs of a broad-based, sentiment-driven rally.
However, underlying fundamentals remain clouded by macro headwinds. Japan’s equity complex remains roughly 13% below pre-tariff levels following President Trump’s sweeping trade measures. These tariffs, now impacting nearly all major U.S. trading partners including Japan, have triggered volatility across global risk assets. Prime Minister Shigeru Ishiba’s direct appeal to President Trump on Monday underscores Japan’s diplomatic concern over the long-term implications of this protectionist escalation.
Despite today’s rally, analysts such as Naoki Fujiwara of Shinkin Asset Management warn that the rebound was likely led by speculative short covering and futures-driven flows. A trading halt triggered by Osaka Exchange’s circuit breaker further indicates the mechanical, rather than fundamental, nature of the rebound. Fujiwara noted that “bets by speculative investors will likely continue to dominate short-term market direction.”
Technically, both the Nikkei and Topix remain in correction territory, and global uncertainties around trade policy, inflationary pressures, and central bank responses could limit the sustainability of the current bounce. The yen’s strength against the dollar, which has fallen 0.63% to 145.92, also adds headwinds to Japan’s export-heavy corporate landscape.
For now, the short-term momentum remains upward, supported by technical oversold conditions and easing sentiment in U.S. futures. But traders and institutional investors should remain cautious and monitor high-beta sectors like tech and financials for signs of durability or renewed fragility in this rally. Risk remains skewed to the downside unless clearer macro direction emerges in the days ahead.