Nikkei Slips Back Toward 70,000 as Investors Lock In Gains After Three-Month High, Oil Rebound Weighs

TOKYO — Japanese stocks fell on Wednesday, giving back a large part of the previous session's gains as investors took profits after the Nikkei 225 closed above 70,000 for the first time in about three months and oil prices climbed back above $100 a barrel.

The Nikkei 225 index dropped 648.27 points, or 0.92%, to close at 70,035.71, narrowly holding above the closely watched 70,000 level.

On Tuesday, the benchmark rose 1.05% to 70,683.98, its highest close in three months, extending a rally driven by artificial intelligence-related chip stocks and a strong performance on Wall Street. The index had gained more than 3.5% over the previous four trading sessions before Wednesday's pullback.

Despite the decline, the Nikkei remains near three-month highs and about 4% below its record intraday high of 72,831.73, set on June 22.

Profit-taking after a sharp run

The retreat came after a rapid climb that began last week, when strong results from U.S. memory chipmaker Micron Technology sparked a surge in Japanese semiconductor shares. The Nikkei jumped 3.3% on Oct. 1, with chip-testing equipment maker Advantest and inspection equipment maker Lasertec posting double-digit gains.

The rally continued Monday, when the index rose 2.4% after a weaker-than-expected U.S. jobs report eased expectations of further interest rate increases by the Federal Reserve. Advantest hit a record high that day, closing at 40,220 yen.

With the index pushing through 70,000 on Tuesday, some investors appeared to lock in profits.

Because the Nikkei is a price-weighted index, a handful of high-priced stocks such as Advantest, Tokyo Electron, SoftBank Group and Fast Retailing carry an outsized influence on its moves. Market strategists have noted that recent gains have at times been narrow, concentrated in a small number of chip-related heavyweights.

Oil back above $100

Higher oil prices also weighed on sentiment. Brent crude, the international benchmark, climbed back above $100 a barrel in early trading Wednesday after new attacks by Yemen's Houthi rebels on Saudi Arabian infrastructure revived concerns about supply from the world's top crude exporter. U.S. benchmark West Texas Intermediate rose to around $90 a barrel.

Japan imports nearly all of its oil, much of it from the Middle East, making its economy and corporate profits sensitive to energy prices. On Tuesday, lower crude prices had helped lift Tokyo stocks.

"The fall in crude oil prices is clearly having an effect," Nomura Securities strategist Wataru Akiyama said Tuesday, highlighting how closely Japanese equities track energy costs.

The U.S. Energy Information Administration this week raised its forecast for Brent crude to an average of $105 a barrel in the fourth quarter, citing attacks on Saudi infrastructure and tight diesel markets.

Bank of Japan holds steady course

Investors also digested comments from Bank of Japan Governor Kazuo Ueda, who spoke after Tuesday's market close in his first major speech since the central bank raised its policy rate to 1.25% on Sept. 18, the highest level in about three decades.

"We intend to continue raising the policy interest rate and adjusting the degree of monetary accommodation in response to developments in economic activity, prices, and financial conditions," Ueda said.

He said Japan's economy is recovering moderately, albeit with some weaknesses, and that underlying inflation is approaching the central bank's 2% target.

Bloomberg reported that Ueda did little to challenge market expectations that the BOJ will not raise rates again at its Oct. 29-30 meeting. Futures markets priced about a 25% chance of a back-to-back increase this month.

The yen was little changed after the speech, trading just above 158 per dollar. A weak yen tends to support Japanese exporters by boosting the value of their overseas earnings, but Japanese officials have expressed concern about its decline. Finance Minister Satsuki Katayama said last week that Prime Minister Sanae Takaichi's government agrees that the era of reflation is over, a stance seen as supporting the BOJ's push to normalize policy.

Bond yields in focus

Japanese government bond yields remain near multidecade highs. The 10-year yield hit 3% last month for the first time since 1996, driven by expectations of further rate hikes and concerns about Takaichi's expansionary fiscal policies.

Rising yields globally have also pressured stocks. The U.S. 10-year Treasury yield hit 5.35% earlier this week, its highest level since April 2002, before easing slightly.

Fed minutes ahead

Investors are awaiting the release of minutes from the Federal Reserve's September meeting later Wednesday in the U.S. for clues about the path of American interest rates. Any signs that the Fed is leaning toward another rate hike could widen the interest rate gap between the U.S. and Japan, putting further pressure on the yen.

On Wall Street, Nvidia closed slightly higher on Tuesday at $239.24 after touching a record high earlier in the session, leaving the chipmaker close to becoming the first company worth $6 trillion. Japanese chip equipment makers such as Advantest and Tokyo Electron closely track sentiment toward Nvidia and the broader AI trade.

Regional markets

Elsewhere in Asia, investors also weighed the oil price rebound and the outlook for U.S. interest rates. Australia's S&P/ASX 200 had risen for three straight sessions through Tuesday, closing at 8,735.7.

Investors will watch the U.S. Fed minutes, oil prices and developments in the Middle East in the coming days. Japanese markets will be closed Monday, Oct. 12, for the Sports Day holiday.

Corporate earnings season in Japan begins later this month, offering a fresh test of whether profits can justify the Nikkei's gains. Analysts say the index's ability to hold above 70,000 will likely depend on continued strength in chip stocks and the direction of global bond yields and oil prices.