Japan’s Nikkei Slides for Third Day Amid Trade Tensions and Election Jitters

Caution grips Tokyo markets ahead of upper house elections and looming U.S.-Japan trade deal deadline.

by Khashif Sarfraz
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Japan’s Nikkei 225 continued its cautious descent for the third consecutive session on Wednesday, weighed down by political uncertainty and trade friction with the United States. Despite gains in chip-related shares following Nvidia’s strong performance, investor sentiment remained fragile ahead of the July 20 upper house elections and a fast-approaching August 1 trade deal deadline.

At the midday break, the Nikkei slipped 0.09%, settling at 39,642.4, after fluctuating between minor gains and losses. The broader Topix Index dropped 0.29% to 2,817.05.

Election Risks Add to Market Uncertainty

Shigetoshi Kamada, General Manager at Tachibana Securities, explained:

“Investors have excuses for not buying or selling stocks. They are cautiously awaiting the outcome of the upper house election, while the outlook of the trade talks is not clear even as the deadline approaches.”

Market jitters have intensified amid speculation that the ruling Liberal Democratic Party (LDP) and its coalition partner Komeito may lose seats. A defeat could empower opposition parties calling for sales tax cuts or abolition, potentially upending fiscal stability and sending bond yields higher.

Indeed, Japanese government bond yields surged to record highs, raising concerns over future borrowing costs and prompting risk-off behavior in equity markets.

Trade Talks with U.S. Add Pressure

Compounding the pressure is Japan’s unresolved trade negotiation with the U.S., facing a deadline of August 1. Local media reports suggest Prime Minister Shigeru Ishiba is set to meet U.S. Treasury Secretary Scott Bessent in Tokyo on Friday, in a last-ditch attempt to avoid a steep 25% tariff on Japanese exports.

Despite a weakening yen, which normally boosts exporters, investors shied away from auto giants like Toyota, which fell 0.93%, on fears of looming tariffs. Fast Retailing, the parent company of Uniqlo, also weighed on the Nikkei, dropping 1.2%.

China Stocks Dip Amid US Tensions, but Nvidia Chip Sales Boost Hong Kong Market

Tech Stocks Track Nvidia Surge

On the upside, chip-related shares saw gains after Nvidia’s overnight 4% rally, buoyed by its announcement to resume sales of its H20 AI chips to China.

  • Tokyo Electron rose 2.94%

  • Advantest gained 0.9%

In the entertainment sector, Toho Co., the famed producer of the Godzilla franchise, jumped 10.06% after raising its annual profit forecast, further boosting sentiment in select segments.

Outlook: Volatility Ahead

As the twin risks of a domestic political shift and international trade penalties loom large, Japanese equity markets may remain range-bound. Investors await clarity on both fronts before making decisive moves.

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