Global yields and oil costs batter Tokyo equities; chip strength stabilises KOSPI

The divergence in performance between Tokyo and Seoul suggests sensitivity to interest rates, not solely chip demand, is setting the trend. AI-linked stocks appear most vulnerable when valuations are extended amid climbing yields, while Korean memory stocks are buttressed by a more distinct demand narrative. Oil and yields are increasing concurrently, maintaining inflation and policy issues at the forefront, and advancements in US-Iran mediation could rapidly alter the energy segment. Micron's earnings report will be the upcoming assessment of whether the chip sector's strength persists.

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Earlier from Japan:

• Katayama says the weaker yen poses problems and is in accord with Bessent on collaborative efforts

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Concerns over yields and oil weighed on Tokyo's AI-centric stock market, whereas Seoul's memory chip producers sustained the KOSPI, positioning Micron's upcoming earnings data as the next pivotal assessment for the AI sector.

Summary:

• Japan's Nikkei 225 dipped 1.2% in the early Tuesday session, on track for a second consecutive daily loss, while the broader Topix index shed 1.75%.
• The decline followed overnight losses in US equity markets, driven by increasing oil costs and Treasury yields that intensified inflation anxieties and expectations of sustained stringent monetary policy.
• Japanese government bond yields are near multi-decade highs, increasing domestic strain.
• South Korea's KOSPI remained largely steady, with Samsung Electronics advancing 1.76% and SK Hynix rising 0.51%, even as most other major stocks fell and net foreign sales reached 941.8 billion won ($692.50 million).
• A Samsung executive indicated that high-bandwidth memory is expected to represent nearly 30% of DRAM makers' wafer capacity in the coming year, compared to around 20% currently.

A worldwide increase in bond yields and oil costs depressed sentiment in Japanese equities, sending the benchmark Nikkei 225 down 1.2% in early Tuesday trading for a likely second straight daily fall, and the wider Topix index down 1.75%. South Korean stocks were largely flat, as advances among chipmakers compensated for softness in other sectors.

Overnight losses on US equity markets, fueled by climbing oil prices and Treasury yields that stirred inflation anxieties and expectations of a sustained tight monetary policy, preceded the selloff in Japan. Pressures domestically are escalating, with Japanese government bond yields close to multi-decade highs. It was reasonable to conclude, a market strategist argued, that inflation anxieties and the accompanying uptrend in interest rates were depressing share prices. The strategist further stated that AI-correlated equities, a primary generator of momentum in the Japanese market, are progressively perceived as overpriced as rates head higher.

The energy piece remains unsettled. On Monday, officials from the US and Iran held separate discussions with mediators as part of a fresh push to conclude a seven-month conflict that has disrupted energy markets. The result of this push is a significant variable for crude prices and, in turn, for the inflation and rate issues currently applying pressure to equity markets.

In South Korea, the KOSPI inched lower by under 0.1%. Foreign investors were net sellers of stocks totaling 941.8 billion won (roughly $692.50 million), the won softened against the dollar, and the benchmark government bond yield decreased. Samsung Electronics climbed 1.76% and SK Hynix added 0.51%, yet most other primary index stocks declined.

Tuesday's session illustrates how a single AI narrative can lead to varied results based on rate sensitivity and valuation conditions. The factors most likely to alter this dynamic are Micron's earnings, shifts in Japanese and US bond yields, and steps forward in the US-Iran mediation process. A single trading day is insufficient to establish a pattern, making a second day of Nikkei declines worth observing relative to the behaviour of oil and yields.