Japanese cash equity markets will be closed on Monday, July 20, in observance of the Marine Day holiday. However, Nikkei 225 futures will trade as usual from 08:45 to 15:45 JST, providing the first domestic indication of investor sentiment before cash trading resumes on Tuesday at 09:00 JST.
The Nikkei 225 suffered a significant weekly decline of 6.44%, more than double the 2.90% drop recorded by the broader Topix index. On Friday alone, the Nikkei fell 4.03%, underperforming the Topix by 1.31 percentage points. This disparity underscores structural differences between the two indices: the Nikkei is price-weighted, while the Topix is based on free-float market capitalization.
Technology stocks were the primary driver of the Nikkei's weakness, accounting for 87.2% of the index's point decline on Friday. The four largest Nikkei constituents—Advantest (TYO:6857), Tokyo Electron (TYO:8035), Fast Retailing (TYO:9983), and SoftBank Group (TYO:9984)—together represented 37.25% of the index's weight. The technology sector as a whole made up 55.64% of the Nikkei and contributed 2,349.52 points of the 2,694.42-point drop.
The outsized influence of tech stocks raises questions about whether the Nikkei's decline overstates the broader market's weakness. While the gap between the Nikkei and Topix suggests a concentration effect, widespread selling persisted: only 71 Nikkei constituents gained on Friday, while 152 fell. The index closed 11.3% below its record finish on June 25.
Several semiconductor-related stocks suffered heavy losses. Kioxia Holdings (TYO:285A) plunged 16.1%, SUMCO (TYO:3436) fell 15.17%, and SCREEN Holdings (TYO:7735) dropped 12.04%. Daisuke Hashizume, senior strategist at Daiwa Securities Group (TYO:8601), noted that while the long-term trend for AI and data centers remains intact, investors are growing uncertain about continued memory-price increases.
Wall Street provided little support, with the Nasdaq declining 1.40% on Friday and the Philadelphia semiconductor index falling 1.6%. The chip index closed 20% below its June 22 peak. Oil prices rose, with Brent crude gaining 4.59% to $88.10 per barrel, while the dollar finished at 162.43 yen.
The upcoming week brings key catalysts for the technology sector. Alphabet (NASDAQ:GOOGL) reports earnings on Wednesday, followed by Intel (NASDAQ:INTC) on Thursday. Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management, warned that a reduction in Alphabet's AI investments could trigger "ripple effects across the entire AI ecosystem."
In Japan, June national inflation figures are due on Friday, and preliminary Japan PMI data is expected at 09:30 JST. The Bank of Japan's next policy meeting is scheduled for July 30–31, following its rate hike to 1% in June. Risks are balanced: a further surge in oil prices could strain importers and heighten inflation concerns, while a pickup in AI investment could spark a rapid recovery in chip demand.
The most decisive indicator on Tuesday will be the Nikkei-Topix spread. If the gap narrows, it would support the view that the decline is concentrated in a few large-cap tech names. A fresh wide underperformance by the Nikkei would suggest ongoing unwinding of AI-related positions.
