Tokyo shares ended sharply lower on Friday, driven by severe profit-taking across the tech and communication sectors. Nikkei 225 futures (JP225) are currently down 1.7%, dropping below 10-day exponential moving average amid stalling AI-optimism.

After peaking near historical highs, JP225 futures have pulled back sharply, breaking below the short-term yellow EMA line. The index is currently testing a key historical resistance-turned-support level around 69,800. While the broader daily uptrend remains intact—supported by the rising long-term purple EMA line—the near-term momentum has shifted bearish. A failure to hold the 69,800 zone could open the door for an extended correction toward the 67,200 area. Source: xStation5

What’s driving JP225 today?

• Regional sentiment shifts to risk-off amid structural headwinds: Sentiment across Asia has sharply soured as institutional investors pull capital from export-reliant hubs, triggered by growing fears of an unsustainable technology valuation gap between heavy AI infrastructure spending and lagging short-term revenues.
• Tokyo inflation spike pulls forward hawkish BoJ rate-hike bets: June headline Tokyo CPI rose faster than expected to 1.7% y/y, while the underlying core-core gauge (excluding fresh food and energy) accelerated to 1.9%, signaling building price pressures and rising second-round effects from oil. Coupled with increasingly hawkish rhetoric from Governor Ueda, forecasts for the next Bank of Japan interest rate hike moved from December to October.
• Equities lose their appeal amid growing yields: As rising yields squeeze equity valuations, global stocks are rapidly losing their appeal amid a highly volatile macroeconomic outlook. This pressure is amplified by growing exhaustion and structural skepticism surrounding the near-term profitability of the artificial intelligence sector.
• Heavy technology sell-off: Market heavyweight SoftBank Group plunged 12.53% as OpenAI might be postpoining its IPO, while prominent chip-sector players Kioxia Holdings and Taiyo Yuden slid 11.24% and 10.84%, respectively, mirroring broader regional weakness in AI-related hardware stocks.
• Market breadth holds positive despite sharp index plunge: Although the Nikkei benchmark suffered steep losses, advancing stocks actually outnumbered declining ones by 1,785 to 1,730 on the Tokyo Stock Exchange. Defensive names like Kao Corp surged 4.85%, alongside gains in Haseko and Olympus, while the Nikkei Volatility index cooled significantly, dropping 22.47% to 30.77.

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