The Tokyo stock market declined on the 9th, with the Nikkei Stock Average falling \413 to close at 55,895, down from the prior trading day. Despite briefly trading in positive territory in early morning hours, the market spent virtually the entire session searching for a bottom. The weakness in 225 futures just ahead of the opening vividly reflected capital fleeing the market. While the previous session on Wall Street had tilted heavily toward risk-on sentiment ? led by technology stocks ? both the Dow Jones Industrial Average and the Nasdaq Composite rose only 2.8%. By contrast, the Nikkei Average had already priced in President Trump's policy reversal the day before ? the earliest of any major market globally ? surging 5.4%. Given this differential, the emergence of profit-taking was hardly surprising.

Cross-border securities transaction data released in the morning (on a weekly basis) revealed that overseas investors were net buyers of domestic stocks for the week of March 29 to April 4 ? the first net buying in four weeks. While this alone is unremarkable, what deserves attention is the sheer scale of net buying: \2,959.6 billion, approaching \3 trillion and marking the highest level since the statistics were first published in 2005. During that week, the market fell on three of five trading days and rose on two. April 1st ? a Wednesday marking the start of the new fiscal year in both name and substance ? delivered a spectacular gain of \2,675, rivaling the record-breaking \2,878 surge seen on the 8th of this week.

However, averaged over the week, the Nikkei Average actually posted a loss of \250. Despite being an ultra-high volatility week driven by futures activity, the Nikkei's net position changed little ? much ado about nothing, one might say. Conversely, this underscores how the market remained in a state of extreme uncertainty, proving difficult for investors to navigate. Many likely chose to sit on the sidelines rather than ride the roller coaster orchestrated by AI algorithmic trading. Foreign investors did indeed buy Japanese stocks aggressively in cash transactions that week ? though it would be more accurate to describe this as aggressive buybacks. The preceding week (March 22?28), they had sold Japanese stocks to the tune of \4,448.1 billion, itself a record high since the statistics began. While the absolute values of both buying and selling naturally rise as the overall market capitalization of the Tokyo market expands, this illustrates how overseas investors have been whipsawed by the ever-changing Middle East situation ? or more precisely, by President Trump's ever-shifting statements.

Furthermore, the current Middle East crisis may have opened Pandora's box. The U.S.-Israeli strike on Iran appears to have been a serious miscalculation by President Trump, emboldened by perceived success in Venezuela. Even if it falls short of outright aggression, the presence of China and Russia ? quietly watching every U.S. move while covertly supporting Iran ? is deeply unsettling.

Many market participants believe that once the Middle East situation stabilizes, oil prices will normalize, upward pressure on long-term interest rates will ease, and broad market indices will regain their cruising speed and direction. However, this view may fundamentally miss the mark. As of the prior session, the Nikkei Average's P/E ratio had once again exceeded 20x. While the consensus forecast for the fiscal year ending March 2026 has shifted from declining to growing profits, the earnings growth outlook for the fiscal year ending March 2027 is likely to come under pressure. Deteriorating profit margins due to cost-push inflation and weakening consumer sentiment amid rising prices are key concerns. Additionally, President Trump ? who has increasingly misread the America First mandate and adopted an ever-more domineering posture ? is highly likely to cast further headwinds over the global economy. Should the growth narrative that justifies elevated P/E ratios in the Tokyo market begin to unravel, fears of a sharp market correction may not prove unfounded.

This year calls for maintaining medium-term vigilance while tracking broader market trends. That said, capital is not dispersing ? rather, a clear thematic rotation is underway. A practical approach is to keep close tabs on the direction of hot money flows and position accordingly. A strong current is currently forming around "AI Data Center (DC)"-related stocks ? a sharper focus than the broad "semiconductor-related" category, narrowing the investable universe considerably. As noted in the prior session, Furukawa Electric <5801> has emerged as a bellwether, with Fujikura <5803> following close behind. Other related names with strong momentum potential include HIRAKAWA HEWTECH <5821>, which develops wiring solutions for AI data centers; JMACS Japan <5817>, which is capturing opportunities in optical cables and connectors for AI data centers alongside the three major cable manufacturers; Onamba <5816>, which has meaningful upside potential through power supply cables and wiring infrastructure for water-cooling systems; and KOHOKU KOGYO <6524>, which commands an overwhelming market share in optical isolators and related components. Submarine cables are undeniably critical infrastructure for international data communications, a fact reflected in capital expenditure trends among U.S. Big Tech companies ? and submarine cable optical communication devices are unquestionably within KOHOKU KOGYO's domain.

Tomorrow marks the Special Quotation (SQ) calculation day for April stock index options. Prior to the morning session, March lending and deposit trends and the March Corporate Goods Price Index (CGPI) will be released, with a three-month Treasury bill auction scheduled during the morning session. Key corporate events include financial results for the fiscal year ended February 2026 from YASKAWA Electric <6506>, and first-half results for the fiscal year ending August 2026 (September 2025 to February 2026) from RYOHIN KEIKAKU <7453>. On the international front, China will release its March Consumer Price Index (CPI) and Producer Price Index (PPI), and the Bank of Korea will announce its policy rate decision. The U.S. is also scheduled to release March CPI data ? a release drawing particularly high market attention. Additionally, the preliminary April University of Michigan Consumer Sentiment Index, April U.S. factory orders, and the March U.S. fiscal balance will be announced.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.