The Nikkei 225 Index has entered a bear market, sliding 21% from its record high as investor sentiment sours. The index now trades at 57,434, its lowest level since April, and faces a week of potential turbulence with earnings reports from key constituents like SoftBank Group and Japan's major banks.
SoftBank's AI bets under scrutiny
SoftBank, the index's heavyweight, is scheduled to release its financial results on Wednesday. The stock has plummeted 60% from its yearly peak, and its technical indicators signal further weakness, with the 50-day moving average crossing below the 200-day moving average—a bearish 'death cross.'
The decline reflects growing concerns over SoftBank's substantial investments in artificial intelligence, particularly its stake in OpenAI. OpenAI recently raised $11 billion, significantly less than the $30 billion it targeted, and its valuation of $1.25 trillion fell short of the $1.4 trillion goal. Additionally, Anthropic, the maker of the Claude AI assistant, is expected to go public with a valuation of $1.5 trillion, below its reported $2 trillion aim.
SoftBank's other major holdings have also suffered. Arm Holdings, in which SoftBank holds a large stake, dropped to $164 last week, down 62% from its peak. Intel, another investment, has fallen 60% to $56.
Japan's banking giants report earnings
On Friday, the Nikkei 225 will react to earnings from Mitsubishi UFJ, Mizuho Financial, and Sumitomo Mitsui Financial, which together have a market value of $470 billion. These stocks have lost momentum, with Mitsubishi UFJ down 15%, Mizuho down 18.4%, and Sumitomo down 15%, as investors rotate away from banking shares—a trend also seen in Europe with banks like Lloyds, UniCredit, and Deutsche Bank.
Despite the Bank of Japan's rate hikes to 1.25% and expectations of further increases, Japanese bank stocks have not benefited. Other major companies reporting this week include Recruit Holdings, Rakuten, Honda, and Suzuki.
AI jitters could persist
The Nikkei's decline is largely attributed to ongoing AI-related volatility, which may continue. U.S. companies like CoreWeave, Nebius, Cisco Systems, and Applied Materials are set to report earnings, and their results could influence global equities given their AI roles. Japanese AI-linked firms such as Kioxia and Advantest are particularly sensitive to these developments.
Technical outlook
The daily chart shows the Nikkei 225 has broken below the key support level of 60,400, its July 29 low. The index trades below its 50-day exponential moving average and other trend indicators, while the Relative Strength Index continues to fall. The path of least resistance appears lower, with the next target at 56,000.
This article is for informational purposes only and does not constitute financial advice.
