On Friday, July 5th, the Japanese stock market ended a five-day rally as investors took profits after the Nikkei and TOPIX indices hit new all-time highs, while the market was also cautious before the release of U.S. employment data.
Main Japanese stock indices retreated from their historic highs touched in early trading as investors locked in profits after recent rebounds and adjusted before key U.S. economic data to be released later on the day.
At the close, the Nikkei Index closed unchanged at 40,912.37 points, but had the best week since the end of March. The broader TOPIX index fell 0.5% to 2,884.18.
Marine transportation, transportation equipment, electrical utilities, and natural gas sectors dragged on the market.
Auto manufacturers underperformed on Friday with Toyota Motor down 2.1% and Honda Motor down 3.4%, becoming one of the worst-performing stocks.
As the marine transportation sector as a whole performed poorly, Mitsui O.S.K. Lines fell 3.6%. Chip-related Advantest Corp. fell 2.1%, while peer Tokyo Electron rose 1.5%. Uniqlo's parent company, Fast Retailing, closed up 0.7%.
Profit taking after the market surged.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management Co., said there was a sense of 'achievement' in the market as both indices hit historic highs.
Analysts also noted some profit-taking after both indices hit record highs, while the stronger yen also put pressure on the market.
With domestic exporters selling the dollar for settlement purposes, the dollar fell to the 160-range against the yen in Tokyo, as investors adopted a wait-and-see attitude before the release of key U.S. employment data later in the day.
Stocks hit a historic high in early trading as optimism was boosted by gains in major European markets overnight, but momentum quickly faded as investors locked in profits after the Nikkei Index rose over 1,500 points in the past five trading days.
Kazuo Kamitani, a strategist at Nomura Securities Investment Content Department, said that profit-taking gained the upper hand due to concerns about the market overheating, and such sharp rises 'usually lead to adjustments, at least causing the index to fall below 40,000 points.'
Lack of new stimulus and caution ahead of the release of key U.S. non-farm employment report later on the day added to downward pressure, and the yen strengthened slightly, putting pressure on the market from the afternoon.
What is the key to further rises?
Against the backdrop of depreciation of the yen, hope for good profits before the corporate earnings season pushed the Japanese stock market to a new closing high in the previous trading day, with the TOPIX index seeing its first rise since December 1989, and the Nikkei index seeing its first rise in about three months.
This year, the Japanese stock market partly benefited from corporate governance reform, which boosted expectations that local companies will continue to increase returns.
In addition, in the first half of this year, the weaker yen supported the share prices of auto manufacturers and export-related companies, while the Bank of Japan's exit from ultra-loose monetary policy boosted the bank industry.
"A key factor in whether stocks will continue to rise will be corporate earnings reports to be released late this month," said Ichikawa of Sumitomo Mitsui.