A rally that propelled Japanese stocks to the highest level in nearly 33 years abruptly halted on Tuesday after news about restrictions on chip-technology exports spurred profit taking.
(Bloomberg) — A rally that propelled Japanese stocks to the highest level in nearly 33 years abruptly halted on Tuesday after news about restrictions on chip-technology exports spurred profit taking.
The Topix closed 0.7% lower, erasing an early rise of as much as 0.6%. A gauge of electronics shares was the biggest drag after the trade ministry said the previously announced chip rules would take effect July 23. The blue-chip Nikkei 225 Stock Average also reversed gains, declining 0.4% and snapping an eight-day rally.
“The news about stricter chip-equipment export controls was likely the trigger to unwind the supply and demand” in the market, said Masayuki Otani, chief market strategist at Securities Japan Inc. “Since companies’ earnings outlooks for this fiscal year have been factored in to some extent, the impact is not likely to be that great.”
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Japanese equities are among the world’s best performers this year, with the Nikkei 225 up about 19%, helped by continued easy-money policy, corporate reforms and inflows of funds from foreign investors. Still, traders remain wary of external negative factors.
There has been talk that “foreign hedge funds are planning to close their positions before the market becomes volatile ahead of the US debt-ceiling issue,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co. “It seems investors are closing positions regardless of the sectors.”
In another cause for caution, technical signals have flashed signs over overheating in the Japanese market. The 14-day relative strength index on the Nikkei 225 reached 84 on Monday, the highest since November 2017 and exceeding levels seen as overbought by traders.
“Given that the Nikkei had risen more than 2,000 yen in nine business days including today, there is probably some profit-taking selling occurring, as would be expected” said Rina Oshimo, a senior strategist at Okasan Securities Co.
–With assistance from Naoto Hosoda and Aya Wagatsuma.
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