"Ruined Because of Korea" Even with a Sharp Rally, No One Buys... Japanese Market Sways with KOSPI

Nikkei Surges Over 2,000 Points Intraday on the 5th

Cautious Buying amid KOSPI Correlation and Strong Yen

Although the Japanese stock market has rebounded sharply, overseas investors have yet to actively buy in. This is due to the repeated pattern of high volatility in the Korean stock market being transferred to the Japanese market.

A citizen is walking past the stock market ticker board in Tokyo, Japan, on the 5th. Photo by EPA Yonhap News

On August 6, Nikkei Asia reported, "The Nikkei 225 rose more than 2,000 points from the previous day, but as the Japanese stock market has become more closely linked to the highly volatile Korean market, many investors have remained cautious about joining the rally."

This morning, Tokyo’s stock market showed signs of a revival in the artificial intelligence (AI) sector that had occurred from April to June. Ibiden, which supplies components to Intel and NVIDIA, led the index gains on the back of strong earnings announced the previous day. Other AI-related stocks such as Advantest, Fujikura, and Kioxia Holdings also advanced across the board.

While the sharp surge was attributed to the 'return of the AI rally,' some market participants believe that investor enthusiasm is not what it used to be. A trader at a Japanese securities firm commented, "Overseas long-term investors are actually shifting their funds toward domestic-demand stocks," adding, "It's even questionable who is buying AI-related stocks." The trader continued, "During April and May, there was a massive inflow of purchases from overseas investors, but now that level of fervor has disappeared." He explained that today’s rally was driven by short-term capital entering through stock index futures.

Naohide Une, CEO of Investment Lab, a Japanese equities-focused asset management company, said, "I think the bottom has already been reached after the sharp fall in July, but it’s difficult to immediately scale up investments and launch a counterattack." Explaining further, he noted that the shock of the AI-related stock crash in July still lingers and given the elevated market volatility, managers of Japanese equity funds find it hard to increase risk exposure.

There are also rising concerns in the market that the linkage between the Japanese and Korean stock markets is increasing. Both the Nikkei Average and KOSPI have a high proportion of AI-related stocks, and many investors now perceive the two indices as essentially the same and have started to trade them as a bundle.

With the volatile swings in the Korean stock market spreading to Japan, it has also become more common for unique factors such as Japanese companies’ earnings to be overshadowed. On this day as well, the Nikkei Average’s gains slowed after the KOSPI pared its gains.

Tomonobu Sekiguchi, fund manager at Asset Management One, also expressed caution about resuming buying. Sekiguchi stated, "As stock prices have fallen, the burden of overvaluation for companies like Tokyo Electron and Murata Manufacturing has eased significantly," adding, "Investment demand for AI stocks remains solid." He further commented, "Once prices begin to move in line with fundamental factors such as earnings, I’d like to increase my position."

Citizens are passing in front of a stock market ticker board in Tokyo, Japan, on the 5th. Photo by EPA Yonhap News

The appreciation of the yen, as a result of a joint foreign exchange market intervention by the United States and Japan, is also dampening investor sentiment. Toru Ibayashi of H Fund Investment said, "The strong yen has reduced the attractiveness of exporters such as automakers," and "Even for AI-related stocks, it is not a situation where one can buy with confidence. There is a lack of trading catalysts to drive the Japanese stock market."

CEO Une forecast that the earliest resumption of full-fledged buying in Japanese stocks "could be September at the soonest." The Japanese unit of BofA Securities is scheduled to host a five-day conference through September 4. The number of investors who have already confirmed their participation has exceeded last year’s level.

Shinichiro Yamagami, Head of Japanese Equity Sales at BofA Securities Japan, said, "There have been cases where meeting requests from investors for some companies—mainly those related to AI—have increased fourfold compared to last year."

This content was produced with the assistance of AI translation services.