Japan's Nikkei set for strongest January since 1998 despite chip sector pressure

Japan's Nikkei share average is on track for its most robust January performance in 26 years, showcasing resilience despite a slight decline on Wednesday as chip-related stocks mirrored losses in their US counterparts.

As of the midday recess, the Nikkei has surged 7.21 per cent for the month, marking its best January start since the approximately 9 per cent ascent witnessed in January 1998.

This performance narrowly surpasses the 7.15 per cent rise observed in 2013 during the inception of Abenomics.

However, on the day, the Nikkei experienced a 0.52 per cent dip to 35,876.96, with major chip-industry players contributing to the decline following disappointing financial reports from Microsoft, Alphabet, and Advanced Micro Devices.

Leading Japanese semiconductor equipment manufacturers Tokyo Electron and Advantest, along with AI-focussed startup investor SoftBank Group, all saw declines of around 1.7 per cent.

In contrast, the broader Topix index, which is less concentrated in technology stocks, remained relatively flat during morning trading. The value shares index gained 0.4 per cent, while the growth shares index fell by 0.4 per cent.

Japan's own earnings season is intensifying this week, revealing major winners and losers.

Construction machinery giant Komatsu soared by 7.3 per cent, and imaging company Canon climbed 6.3 per cent, while electronic component manufacturer Alps Alpine experienced a substantial decline of over 17 per cent.

While Wall Street's tech share challenges impacted the day's trading, Nomura Securities strategist Maki Sawada noted, "there will be more and more divergence among individual stocks now that the earnings season has really gotten started." 

A total of 319 companies are slated to announce earnings on Wednesday, with the reporting season reaching its peak in mid-February.

Although the Nikkei currently sits approximately 3 per cent below the 34-year peak reached on Jan. 16 at 36,984.51, recent market movements have been influenced by foreign investor flows, a weak yen benefiting profits, and enthusiasm over corporate governance reforms, alongside notable momentum.

Analysts had anticipated a market pullback after technical indicators signalled overheating earlier in the month. 

However, current indicators suggest a more balanced market, with the relative strength index (RSI) dropping below 62 after breaching 76, indicating overbought conditions earlier this month.

(With Reuters Inputs)