Nikkei Falls 0.8% for Third Straight Session as Advantest and Tokyo Electron Drag Tokyo Stocks Before Fed, BOJ

Japan's Nikkei 225 fell for a third straight session on Monday. Heavyweight chip and artificial intelligence stocks dragged the index lower, while energy companies and trading houses rose on high oil prices.

The Nikkei closed down 503.51 points, or 0.80%, at 62,189.65, heading for its lowest close since late July. The broader Topix index went the other way, rebounding from below the 4,000 mark in morning trade. That shows the declines were concentrated in a few large technology names.

Gainers outnumbered losers among Nikkei components by a wide margin in morning trade, about 166 to 59. But the index's heavy weighting toward chip stocks pulled the headline benchmark down.

Chip stocks weigh

Chip-testing equipment maker Advantest and chipmaking equipment supplier Tokyo Electron did the most damage. In the morning session, they took about 222 and 198 points off the Nikkei respectively. Uniqlo owner Fast Retailing was also a drag.

Other chip-related shares fell sharply. Wafer maker Sumco dropped about 4%, and Kokusai Electric and Screen Holdings each fell nearly 4% in morning trade.

The selling followed a weaker close on Wall Street on Friday, where the S&P 500 fell 0.5% and the Dow lost 1.2%. Concerns about overinvestment in AI have weighed on chip stocks globally for weeks, ahead of earnings this week from Alphabet, Microsoft and Amazon.

Energy and trading houses gain

Investors moved into energy and resource stocks, helped by crude prices near six-month highs. Oil explorer Inpex rose nearly 5%, and engineering firm JGC Holdings climbed about 4.6%. Trading houses Mitsubishi Corp., Toyota Tsusho and Itochu were among the biggest positive contributors to the index.

Banks and insurers also gained, supported by rising Japanese interest rates, which tend to improve lending margins.

Brent crude rose about 6% last week and reached its highest level since April. Houthi attacks on Saudi Arabia, a surge in attacks on shipping in the Strait of Hormuz, and reports that Washington and Israel were considering renewed strikes on Iran all raised supply concerns. Prices eased more than 1% on Monday after reports that Qatari mediators had visited Tehran to push for de-escalation.

Higher oil prices are a concern for Japan, which imports almost all of its crude, because they raise costs for companies and households.

Signs of oversold conditions

Some analysts said the recent decline may have gone too far in the short term.

"The Nikkei Stock Average is showing signs of short-term technical undervaluation," said Satoshi Saito, senior analyst at Monex Securities. He added that stocks may see phases of short-term rebound, but with several concerns in the background.

Jun Morita, head of research at Chibagin Asset Management, said the week was packed with events, which makes it hard for investors to take bold positions. He expected the central bank meetings to bring no surprises and said any turbulence would more likely come from technology earnings.

Central banks in focus

The week's calendar is crowded. The Fed announces its policy decision on Wednesday afternoon in Washington, which is early Thursday in Tokyo. Markets broadly expect the U.S. central bank to hold rates, though some traders are betting on a hike in December as inflation stays high.

The Bank of Japan holds its two-day policy meeting on Oct. 29–30 and will release its quarterly Outlook Report on Friday. In its Financial System Report last week, the BOJ said Japan's financial system remained stable overall. It flagged Middle East developments as a risk and ran stress tests that included higher oil prices, weaker AI-related expectations and sharply higher interest rates.

The yen was little changed, with the dollar at about 156.8 yen in morning trade. U.S. inflation figures for September, measured by the personal consumption expenditures index, are also due this week.

Regional picture

Most Asian markets fell on Monday. South Korea's KOSPI dropped about 1.4% on foreign selling ahead of chip earnings, and Taiwan's benchmark fell nearly 2%. Hong Kong's Hang Seng and Australia's S&P/ASX 200 were among the few regional gainers.

Investors expect Tokyo's chip stocks to stay volatile until this week's U.S. tech earnings show whether AI spending is still growing.