Japan Stocks Fall on US Tech Rout; Kioxia Outlook Adds to Pressure

Japanese stocks fell as a sharp drop in U.S. semiconductor shares and concerns about earnings at domestic technology companies weighed on sentiment.

According to Bloomberg, the Nikkei 225 was down 0.7% from the previous session as of 9:08 a.m. on November 2. Chip-related shares including Ibiden Co. and Sumco Corp. led the decline, while the broader Topix index fell about 0.8%.

The weakness followed a tech-led selloff on Wall Street on October 30. The Philadelphia Semiconductor Index plunged 7.2% after earnings from major technology companies fell short of market expectations. Intel Corp. posted its biggest drop in more than four decades.

Kioxia's earnings outlook also damped investor sentiment. On October 30, the Japanese chipmaker forecast quarterly operating profit of 2 trillion yen, or about $12.7 billion, but that was far below market estimates. Investors also raised the possibility that gains in memory prices could effectively stall from the previous quarter. Kioxia's American depositary receipts slumped 17% in the U.S. market.

Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Lab, said Kioxia's disappointing outlook could heighten concerns about profitability across Japan's technology sector. He added that selling pressure could continue in Japanese artificial intelligence and semiconductor-related shares after the sharp drop in U.S. tech stocks.

Debate over the profitability of heavier AI spending has resurfaced in global equity markets. Earnings reports from major U.S. technology companies including Meta Platforms Inc., Alphabet Inc. and Amazon.com Inc. have prompted investors to take a tougher view on large-scale AI investment. The Nikkei 225, which hit a record high in June, had fallen about 13% by October 30, while shares of Kioxia and electronic parts maker Taiyo Yuden Co. have each dropped more than 50%.

Political uncertainty ahead of the U.S. midterm elections is also adding pressure. Japanese markets will be closed for a holiday on November 3, and the outcome of the U.S. midterms is set to begin taking shape during Asian trading hours on November 4. That may keep investors cautious about increasing exposure to risk assets before the results become clearer.