Japanese stocks edged lower on Tuesday as the Nikkei 225 slipped 0.11% to 63,684.85 and the Topix index declined 0.26% to 3,949.90, according to Reuters. Investor sentiment remained subdued after the Nikkei fell nearly 1% on Monday following confirmation from Japan's Finance Ministry that Tokyo and Washington had carried out coordinated intervention to support the yen. Market breadth remained weak with 141 stocks declining against 83 gainers on the Nikkei, as reported by Reuters. The dollar was last trading at 157.5 yen, up 0.22% on the day, raising concerns for exporters as a stronger yen tends to weigh on Japanese companies by reducing the value of overseas earnings when repatriated.
The US Treasury stepped up last week in a joint operation with the Bank of Japan to support the Japanese Yen, which had slumped to the lowest level since 1986 against the greenback. According to CNBC TV18, as a result of buying by the New York Fed, who sold euros to buy the Yen, and Japan's record $53.3 billion in a single day to buy its own currency, the yen reversed to 157.57 from levels to 163.73 last week. This represents the first joint purchase of the Yen by the two countries since 1998, and the first joint operation after both countries acted to weaken the yen after the devastating earthquake in 2011. The official announcement has validated market suspicions about the intervention's effectiveness, with authorities signaling they were prepared to intervene again if the Japanese currency came under renewed pressure, as reported by Reuters.
Market participants turned their attention to Toyota Motor, with Reuters reporting that the world's largest automaker is expected to post a fifth consecutive quarterly decline in operating profit due to weaker vehicle sales and rising costs, according to Reuters. Investors are also likely to examine Toyota's foreign exchange assumptions and earnings guidance, given the significant impact currency fluctuations have on the company's profitability, as reported by Reuters, citing market strategists. The automotive sector's decline demonstrates how currency movements can quickly overshadow sector-specific positives in Japan's equity market, with the coordinated intervention becoming the dominant factor driving investor sentiment.
Among AI-related stocks, performance was mixed with technology investment giant SoftBank Group falling 4.5%, while optical fibre and cable maker Fujikura gained 5%, according to Reuters. Furukawa Electric surged 9.97%, making it the top performer on the Nikkei, followed by pharmaceutical company Otsuka Holdings, which advanced 7.09%, as reported by Reuters. Among the biggest losers, NH Foods slumped 8.69%, while logistics company Yamato Holdings dropped 5.63% after both companies reported earnings that disappointed investors, as reported by Reuters. The mixed performance reflects selective investor interest amid broader market uncertainty over currency intervention policies.
Despite currency volatility weighing on markets, Japan's manufacturing sector showed strong momentum with manufacturing output rising at its fastest pace in more than 12 years in July, according to Business Standard. The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) came in at 54.5 in July, easing slightly from 54.8 in June and the flash reading of 54.7, but marking the seventh consecutive month of expansion. The surge was buoyed by AI-related demand with a sharp surge in new orders, as reported by Business Standard. This economic strength provides a counterbalance to currency-related pressures, though it has been insufficient to offset the impact of yen appreciation on export-oriented companies.
