Market Analysis: Nikkei Plummets Amid Deteriorating External Environment and Rising Domestic Rates

On July 2, 2026, the Tokyo stock market saw the Nikkei Stock Average experience a sharp decline, significantly erasing the gains from the previous day. Meanwhile, the TOPIX (Tokyo Stock Price Index) continued to rise slightly, resulting in a day where different movements were observed across indices.

We provide a detailed explanation of today’s market trends.

Nikkei Stock Average: Accelerated Selling Led by Tech Stocks

Today, the Nikkei Stock Average closed at 68,733.15 yen, down 1,741.81 yen from the previous day.

The primary cause of the decline was a risk-averse movement due to worsening external conditions. In addition to the tech stock sell-off observed in US markets yesterday, weakness in South Korea’s KOSPI market spread its influence, leading to persistent ‘profit-taking selling,’ particularly centered on AI semiconductor-related stocks, throughout the day.

Although there were moments during the session where the decline narrowed, it became clear that many investors adjusted their positions and adopted a wait-and-see attitude ahead of the US employment statistics scheduled for this evening. As a result, ‘dip buying,’ which was expected to provide a rebound, was limited, leading to renewed selling pressure in the afternoon.

Furthermore, domestic factors contributed negatively; reports of poor bids in the 10-year government bond auction sparked rising domestic interest rates, which were perceived as negative news, especially for growth stocks.

TOPIX: Speculative Buying Supports Lagging Stocks

While the Nikkei Stock Average declined sharply, the TOPIX (Tokyo Stock Price Index) continued to rise slightly.

This divergence suggests that ‘sector rotation’ is occurring in the market. Throughout the day, buying interest from investors looking for undervalued opportunities—specifically targeting ‘lagging stocks’ that had seen limited recent gains—persisted.

Given that the Nikkei Stock Average is heavily influenced by a select group of major tech stocks, while TOPIX is a benchmark that covers the Japanese economy more broadly, it can be said that selling pressure in specific sectors had a relatively smaller impact on the overall index.

Summary and Future Outlook

Today’s market was characterized by severe conditions led by major stocks, weighed down by strong headwinds from the external tech sell-off and uncertainty stemming from rising domestic interest rates. However, as seen by TOPIX’s continued rise, it does not mean that overall purchasing power has been completely lost; rather, capital is being diversified.

The focus remains on the US employment statistics scheduled for this evening. Since these results will influence expectations regarding US interest rates and economic judgment, this will be a critical juncture determining the market direction for the latter half of the week.

For investors, it is necessary to assess how long the adjustment phase in tech stocks will continue, while closely monitoring whether the shift of capital toward lower-valuation stocks accelerates.