Nikkei dips after profit-taking: Is this a buying opportunity?

2025-07-01 general

tokyo, Tuesday, 1 July 2025.
The Nikkei average on the Tokyo Stock Exchange started lower today, declining by over 300 yen to around 40,100 yen. This reverses a five-day winning streak. Investors are taking profits amid concerns that the market is overheating. Semiconductor stocks are under pressure, reversing gains from expectations of US Federal Reserve interest rate cuts and the AI boom. Despite the dip, some analysts see this as a potential buying opportunity, considering the strong underlying economic data.

Market overview

The Nikkei 225 index opened at 40,340.64 today [7]. It reached a high of 40,345.87 before declining to a low of 40,117.10 [7]. As of 09:18 JST, the index was trading at 40,121.02, a decrease of 366.37 points, or 0.905%, from the previous day’s close [7]. This downturn follows a period of strong gains, with the Nikkei having risen by over 2000 yen in the preceding five days [1]. The decline reflects profit-taking by investors and concerns about short-term market overheating [1].

Factors influencing the decline

Several factors are contributing to the Nikkei’s decline. Profit-taking is a primary driver, as investors capitalize on recent gains [1]. Concerns about a potential overbought market condition are also weighing on sentiment. The Nikkei’s chart had exceeded the 5% threshold above the 25-day moving average, signaling short-term overheating [1]. Additionally, the strengthening yen against the dollar is adding pressure, driven by expectations of early interest rate cuts by the U.S. Federal Reserve [3].

Sector performance

Semiconductor stocks, which had previously led the market’s gains, are experiencing selling pressure [1]. Shares of companies like Tokyo Electron and Advantest have started the day lower [1]. Fast Retailing and SoftBank Group are also declining [1]. Conversely, some stocks are showing resilience. Daikin, Aeon, and Ryohin Keikaku (MUJI) are among the gainers, indicating some sectors are still attracting buyers [1]. The differing performance across sectors highlights the nuanced nature of the current market correction [GPT].

Expert opinions and market outlook

The Bank of Japan’s (BOJ) June Tankan survey showed improvement in the business sentiment index for large manufacturers, rising to +13 from +12 in March [1]. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, noted the surprisingly strong Tankan results [1]. Ichikawa believes the Tankan data contributed to a temporary strengthening of the yen, further weighing on the stock market [1]. Market analysts suggest the Nikkei may find support around the 40,000 yen level [2].

Currency movements and fed policy

The yen has strengthened against the dollar, trading at ¥143.85-86 per dollar, a 0.187% increase from the previous day [3]. This appreciation is driven by expectations of early interest rate cuts by the U.S. Federal Reserve [3]. The U.S. Chicago Purchasing Managers Index (PMI) for June unexpectedly worsened, increasing expectations that the Federal Reserve will cut interest rates sooner rather than later [3]. This has led to a decline in U.S. long-term interest rates, temporarily reaching 4.22% [3].

Top and bottom performers

Daikin contributed positively to the Nikkei, with a gain of +6.32 [7]. Konami and Aeon also showed strong positive contributions of +4.32 and +3.19 respectively [7]. Fast Retailing is the biggest negative contributor at -102.18, followed by Tokyo Electron at -52.89 and Advantest at -49.23 [7]. These stocks are significantly impacting the overall index performance [7].

Bronnen

stock market profit-taking