Japan's Stocks Poised for Decline Amid Technology Sell-Off and Middle East Tensions

Japanese Stocks Set to Fall as US Jobs Data Fueled Rate Hike Expectations

Japanese stocks are poised to decline, led by tech shares, following strong US jobs data that has fueled expectations of higher interest rates for a longer period. This has sparked a selloff in AI-related shares on Wall Street. The pressure on stocks is also being exacerbated by the recent missile launches by Iran towards Israel, which has heightened tensions in the Middle East.

The Nikkei 225 Stock Average futures expiring in September were trading at 63,865.00 on the Chicago Mercantile Exchange as of 7:46 a.m. Tokyo time. This is a significant drop from the Friday close of 66,588.12 for the underlying gauge. The decline in Japanese stocks is attributed to the increasing risk of a US interest-rate hike, which is dampening investor sentiment.

The selloff is expected to spread across Japanese technology shares, while funds may rotate into defensive sectors such as pharmaceuticals, food, and telecommunications. Technology and AI-related stocks, including SoftBank Group Corp. and Kioxia Holdings Corp., which reached record highs earlier this month, are likely to come under pressure. This is due to the decline in the Nasdaq 100 by about 5% and the Philadelphia Semiconductor Index by 10% on Friday.

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The strong US job growth in May has reinforced expectations that the Federal Reserve may need to keep monetary policy restrictive for longer to contain inflation. This has heightened concerns over lofty technology-stock valuations and the sustainability of the AI-fueled rally in the US and Asia. Japanese companies have benefited from the boom, although to a lesser extent than their South Korean peers. Kioxia, for instance, has soared more than 600% this year through Friday, while SoftBank has climbed nearly 70%.

Traders are increasing bets on a Bank of Japan rate hike when policymakers meet next week. This is due to mounting upside risks to inflation. Investor sentiment is also likely to be weighed by escalating tensions in the Middle East following Iran's launch of multiple waves of missiles towards Israel. The Israel Defense Forces have warned that additional barrages could follow, although it stated that all incoming missiles were intercepted or landed in open areas.

Note: The record high for Kioxia Holdings Corp. and SoftBank Group Corp. in May is not explicitly stated in the original article. The values provided in the table are based on the information given.

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